Assuming Decedent resided in CA:
1.Priority of payment of creditor claims. PC 11420 sets forth the order of payment of the decedent’s debts, expenses of administration and charges against the estate. If the estate is insolvent and there are insufficient assets to pay general debts, it may be necessary for the PR to pay a portion of each general debt, pro rata. PC 11420 provides:
(a) Debts shall be paid in the following order of priority among classes of debts, except that debts owed to the United Statesor to this state that have preference under the laws of the United Statesor of this state shall be given the preference required by such laws:
(1) Expenses of administration. With respect to obligations secured by mortgage, deed of trust, or other lien, including, but not limited to, a judgment lien, only those expenses of administration incurred that are reasonably related to the administration of that property by which obligations are secured shall be given priority over these obligations.
(2) Obligations secured by a mortgage, deed of trust, or other lien, including, but not limited to, a judgment lien, in the order of their priority, so far as they may be paid out of the proceeds of the property subject to the lien. If the proceeds are insufficient, the part of the obligation remaining unsatisfied shall be classed with general debts.
(3) Funeral expenses.
(4) Expenses of last illness.
(5) Family allowance.
(6) Wage claims.
(7) General debts, including judgments not secured by a lien and all other debts not included in a prior class.
(b) Except as otherwise provided by statute, the debts of each class are without preference or priority one over another. No debt of any class may be paid until all those of prior classes are paid in full. If property in the estate is insufficient to pay all debts of any class in full, each debt in that class shall be paid a proportionate share.
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Mr Arvin offers the controlling statute. For those readers who are interested in the PA rules concerning priority of payments please see my article entitled Pennsylvania Probate: What Debts Take Priority at the following link: http://www.sjfpc.com/pa_probate_law_section_3392_estate_debt_priorities.html. Although this relates to PA law, in most states this is what needs to be done before beneficiaries can be paid.
Hope this helps.
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If an estate is insolvent the fiduciary must account to the creditors and pay them off in the order of priority provided by the probate code.
This hass become increasingly common in recent years and there are quite a few attorneys with experience in this area.
If you've got a buyer for the house, there's actually a trick to get costs of administration related to the house out of the estate ahead of the secured lender. This means that if one had been paying the mortgage out of one's own pocket, one MIGHT get reimbursed ahead of the secured lender after a court-confirmed sale.
The whole process is tricky and must be done quickly, but I'd be happy to share the necessary citations with the attorney for the estate.
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