How Do Creditors Get Paid in an Arizona Probate?

Do My Parent's Debts Become My Debts When They Die?

Generally, no.

Simply being someone's child does not ordinarily make you personally responsible for that person's credit cards, medical bills, personal loans, or other debts.

There may be situations where someone has an independent obligation—for example, because that person jointly incurred a debt, guaranteed it, or is otherwise personally liable.

But the family relationship itself does not normally make a child responsible for a parent's debts.

Instead, valid claims are generally asserted against the deceased person's estate.

That distinction is extremely important.

If a credit-card company calls after your mother's death and asks you to pay her balance, do not assume that you personally owe the money simply because you are her son or daughter.

How Are Creditors Notified About an Arizona Probate?

Arizona has procedures for notifying creditors after a personal representative is appointed.

The personal representative generally publishes a notice to creditors once a week for three successive weeks in a newspaper of general circulation in the county. The notice announces the appointment and tells creditors where and when claims must be presented.

The personal representative must also provide written notice by mail or other delivery to known creditors.

This distinction between publication notice and actual notice to known creditors matters because different deadlines can apply.

How Long Does a Creditor Have to File a Claim?

For creditors receiving notice through publication, Arizona law generally requires claims to be presented within four months after the date of the first publication.

Known creditors who receive written notice generally must present their claims within the later of:

four months after the first published notice, or

60 days after the written notice is mailed or otherwise delivered.

There are additional statutory limitations and exceptions that can affect particular claims, so the four-month period should not be treated as the only possible deadline in every case.

But from the personal representative's perspective, the creditor-notice process creates an important point in the administration.

Until the estate has a clearer picture of its creditor exposure, distributing everything to beneficiaries can be risky.

What Does a Creditor Have to Do to Make a Claim?

A creditor generally must properly present the claim.

Arizona has statutory requirements governing the manner in which creditor claims are presented. The claim process is more than simply sending an old bill to one of the deceased person's children.

The personal representative should keep records of claims received and determine whether each claim was properly and timely presented.

That may include credit cards, medical expenses, personal loans, judgments, unpaid services, contractual obligations, and other liabilities.

Arizona's statutory definition of estate “claims” is broad and includes liabilities arising in contract, tort, or otherwise, as well as certain liabilities of the estate arising after death.

Does the Personal Representative Have to Pay Every Bill That Arrives?

No.

Receiving a bill does not automatically establish that the estate owes it.

The personal representative has a responsibility to administer the estate properly, which includes evaluating creditor claims.

A claim may be valid.

It may be partially valid.

It may have already been paid.

It may be disputed.

It may have been presented too late.

Or the creditor may not be able to establish that the estate actually owes the amount demanded.

Arizona law provides procedures for allowing or disallowing claims.

The personal representative should not simply write checks in the order that bills arrive.

What Happens If the Personal Representative Disputes a Claim?

A personal representative does not have to agree with every creditor.

Arizona law provides a process for allowance and disallowance of claims.

If a claim is disputed, additional deadlines and procedures can become important. A creditor whose claim is disallowed may need to take timely action to preserve the claim.

This is one reason both personal representatives and creditors should pay close attention to written communications concerning estate claims.

Ignoring a notice, rejection, or deadline can have significant consequences.

Which Creditors Get Paid First?

This becomes critically important when an estate does not have enough money to pay everyone.

Arizona law establishes a priority system for estate claims.

The general order is:

1. Costs and expenses of administration. 2. Reasonable funeral expenses. 3. Debts and taxes with preference under federal law. 4. Reasonable and necessary medical and hospital expenses of the decedent's last illness, including compensation of persons attending the decedent. 5. Debts and taxes with preference under Arizona law. 6. All other claims.

That means an ordinary credit-card company does not necessarily stand in the same position as an administration expense or qualifying final medical expense.

What Happens If There Isn't Enough Money to Pay All the Creditors?

The estate may be insolvent.

Suppose Mom dies with:

$40,000 in cash,

$15,000 in administration and funeral expenses,

$35,000 in final medical expenses, and

$80,000 in credit-card and other unsecured debt.

There obviously is not enough money to pay every claim in full.

That does not ordinarily mean the children have to contribute their own money.

Instead, the personal representative must administer the available estate assets according to Arizona law and the applicable priority of claims.

Claims in lower-priority categories may receive only partial payment—or potentially nothing—if the estate's assets are exhausted by higher-priority obligations.

This is exactly why a personal representative should not simply pay whichever creditor calls first.

Can I Pay the Credit Cards First Just to Get Them Out of the Way?

That can create a problem.

Imagine the personal representative receives a $20,000 credit-card bill shortly after appointment and immediately pays it.

Several weeks later, the personal representative discovers substantial administration expenses and qualifying last-illness medical expenses that have higher statutory priority.

If the estate is insolvent, paying the lower-priority creditor prematurely may have reduced the money available for claims that Arizona law places ahead of it.

A personal representative should therefore understand the estate's assets, liabilities and likely claims before making substantial creditor payments.

What About a Mortgage on the House?

A secured debt presents somewhat different issues.

If the deceased person owned a house subject to a mortgage or deed of trust, the lien generally remains attached to the property.

The estate may continue making payments while the property is being administered, sell the property and satisfy the secured obligation through closing, or transfer the property subject to the existing lien when legally appropriate.

The existence of a mortgage does not necessarily mean the house must be sold.

It also does not necessarily mean the person inheriting the property automatically becomes personally liable for the deceased borrower's debt.

As we discuss elsewhere on this site, federal law provides important protections for certain successors who inherit residential property after a borrower's death.

What About Car Loans and Other Secured Debts?

The same basic distinction is important.

A creditor holding valid collateral may have rights against that collateral even though a beneficiary is not personally liable for the deceased person's debt.

For example, if Dad dies owing money on a vehicle, the family cannot ordinarily keep the vehicle, stop making payments, and expect the lender's lien to disappear.

The personal representative needs to determine the balance owed, the value of the collateral, the estate's interest in keeping or selling it, and the creditor's rights.

Arizona separately addresses secured claims in its probate creditor statutes.

Should the Personal Representative Pay Bills Before Distributing Money to the Beneficiaries?

Generally, the personal representative should make sure the estate can satisfy its legitimate obligations before distributing assets that may be needed to pay them.

That does not necessarily mean every estate must remain completely undistributed until the very last bill is resolved.

In an appropriate estate, partial distributions may sometimes be reasonable if the personal representative retains an adequate reserve for creditors, taxes, administration expenses, and other obligations.

But distributing too much too soon can create serious problems.

Suppose an estate has $300,000 in cash and the personal representative immediately distributes all $300,000 to the beneficiaries.

Then a substantial valid creditor claim appears.

The fact that the money has already been distributed does not magically solve the estate's obligation.

Careful administration means determining what needs to be retained before making distributions.

Can a Creditor Force the Family to Sell the House?

Potentially, estate property may need to be sold if the estate lacks sufficient cash to satisfy valid obligations.

But the existence of a creditor claim does not necessarily mean a particular creditor gets to decide which estate asset is sold.

The personal representative administers estate property subject to Arizona law, the will, applicable liens, court orders, fiduciary duties, and the circumstances of the estate.

If the estate has sufficient cash or other assets, selling the house may be unnecessary.

If the house represents most of the estate's value and substantial valid obligations must be paid, a sale may become necessary.

That issue frequently overlaps with another question we address on this site: whether an Arizona personal representative can sell estate real property without every beneficiary's permission.

What If a Creditor Never Makes a Claim?

This is where Arizona's creditor-notice and nonclaim statutes become particularly important.

Proper notice can establish deadlines after which certain claims are barred.

The personal representative should not assume, however, that every debt automatically disappears exactly four months after publication.

Whether a particular claim is barred can depend on the type of claim, whether the creditor was known, what notice was provided, when the claim arose, other applicable statutes of limitation, and statutory exceptions.

Arizona has separate statutes governing notice to creditors, limitations on presentation of claims, and the manner in which claims must be presented.

If a significant creditor appears after the apparent deadline, the claim should be evaluated rather than automatically paid or rejected.

What If Nobody Opens Probate for Years?

Waiting does not necessarily preserve creditor claims forever.

Arizona has important time limitations governing probate and appointment proceedings.

For example, Arizona generally imposes a two-year outside limitation on many probate and appointment proceedings, subject to statutory exceptions. And when a proceeding is commenced later under one particular statutory exception, the personal representative's authority is substantially restricted and claims other than administration expenses cannot be presented against the estate.

Old estates therefore require careful analysis.

The fact that a debt once existed does not necessarily tell you whether it remains enforceable against an estate years later.

What Records Should the Personal Representative Keep?

Keep everything.

That includes creditor notices, publication records, certified-mail or delivery information, bills, account statements, medical invoices, funeral expenses, tax notices, loan statements, proofs of claim, correspondence with creditors, payments made, checks, receipts, and records of claims that were disputed or rejected.

The personal representative may eventually need to explain how estate money was used and why particular creditors were—or were not—paid.

Good records make that much easier.

I'm the Personal Representative. How Do I Know Which Bills to Pay?

Start by making a complete list.

For each debt, determine:

Who is the creditor?

What is the claimed amount?

Is the debt secured or unsecured?

Was the creditor known?

Was notice provided?

Was the claim timely presented?

Is the amount correct?

Does the estate dispute it?

What statutory priority applies?

And does the estate have enough money to pay all valid claims?

Only after you understand the overall creditor picture can you safely determine how estate funds should be used.

A Creditor Is Calling Me Personally. What Should I Do?

Do not assume you personally owe the debt.

If you are the personal representative, identify yourself in that capacity and determine whether the creditor needs to present a claim against the estate.

If you are simply a beneficiary or family member, the fact that a creditor has your telephone number does not ordinarily make you responsible for the deceased person's obligation.

And before paying a deceased parent's debt from your own money, determine whether you actually have an independent legal obligation to pay it.

Don't Distribute an Arizona Estate Until You Understand the Creditor Claims

Creditor administration is one of the most important parts of probate.

The goal is not simply to pay every bill that arrives.

The personal representative needs to identify legitimate estate obligations, provide required notices, determine whether claims were properly and timely presented, evaluate disputed claims, follow Arizona's priority rules, protect secured property, maintain appropriate reserves, and ultimately distribute the remaining estate to the people entitled to receive it.

If you are administering an Arizona estate and are unsure which creditors should be paid—or whether a claim should be paid at all—The Law Offices of Jeffrey D. Lynch can help evaluate the estate's creditor obligations and determine the appropriate next steps.

Request an Arizona Probate Consultation

This page provides general information about Arizona law and is not legal advice. Creditor rights and estate obligations depend on the particular debt, applicable deadlines, notice provided, available estate assets, liens, priority rules, and other circumstances.