Administering an Insolvent Estate

When you think of administering an estate after someone dies, you likely think of handing out their money and property to family members according to their last will and testament. However, many people have financial issues and may pass away with serious debts and few assets.

When you have more debts than your do assets and property, you are legally called “insolvent.” So what happens when you leave behind an insolvent estate?

A big part of administering an estate is settling all debts and paying necessary taxes. In some cases, however, there is not enough money to cover all of the debts and taxes. There are different options for handling this situation. First, any joint debts will still be the responsibility of the joint account-holder. Debts that are in the deceased’s name only can be handled in different ways.

First, don’t simply ignore the issue. Creditors do not have the right to come after you for someone else’s debts. Family members of the deceased do not have to worry about credit scores, so if the
accounts go into collection, there is no effect on you or your family. However , creditors will likely try to collect the debt for some time, which can be a constant reminder of your loss and can be inconvenient and annoying. Some family members think they are doing the right thing by trying to allocate whatever assets exist among creditors to pay partial debts. However, once you do so, you can bet creditors will continue trying to collect the remaining balances.

Heading Into Probate Court

While submitting the estate to probate under Washington State law1 may seem like the most complicated option, probate courts can deal with an insolvent estate just like a bankruptcy court can deal with overwhelming debts for living individuals. However, insolvent estates will not be granted Nonintervention Powers,2 which allows an estate representative to handle the affairs without court involvement. Instead , the court must approve all actions taken, which can be complex.

If you want to submit an insolvent estate to probate to resolve the debts, it is a wise idea to have legal representation throughout the process. An attorney who fully understands the probate laws and procedures can ensure the process goes as efficiently as possible and that estate administration is in full compliance with the law. If you are concerned about paying for legal expenses, the court will likely allow you to pay a lawyer out of whatever estate assets exist before the rest goes to creditors.