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Probate issues: What is an insolvent estate?

On Behalf of | Sep 28, 2020 | Estate Administration & Probate

When a person in California or elsewhere spends more money than he or she earns in income, it can create serious financial problems. For instance, such a person might rack up substantial credit card debt. If a person has an estate plan but the estate is bankrupt, it can cause a lot of problems for loved ones when complicated probate issues arise.

An estate owner might die owing more debt than the estate has in equity. In such circumstances, the estate in question must be liquidated in order to pay off the debt. It is possible that inheritors of an estate may choose to pay back loans left outstanding when a decedent’s estate is insolvent. Probate judges typically try to help reduce such debt as much as possible. 

Taking an estate insolvent may be done through the protection of a probate court. Any legal fees incurred in the insolvency process are typically paid with proceeds earned from estate liquidation. It should be noted that a beneficiary who is not named on a loan or other liability of an estate owner is not obligated to pay back the creditor or creditors in question.

Many beneficiaries in California and beyond determine it best to personally resolve such debts rather than be hounded by creditors who will likely ring their phones off the hook even though they are not legally obligated to pay back a benefactor’s debt. Insolvency is a complex topic. It is helpful to discuss concerns with an experienced attorney who is well-versed in probate issues rather than trying to handle such problems alone. 

 

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