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Sudden Wealth Blog

What Does It Mean When an Estate is Insolvent?

Note showing "Pay debts." When estate is insolvent.

Dealing with the death of a loved one is never easy, and it can be even more challenging when their estate is insolvent. This means that the debts they left behind are greater than the value of their assets. If you find yourself in this situation, it’s important to understand what it means and how to handle it.

Just because the estate is insolvent doesn’t mean there is nothing you can do.

If you find yourself dealing with an insolvent estate, there are still steps you can take to handle the situation. First, you will need to prioritize the debts and determine which ones must be paid first. This may involve working with creditors and negotiating payment plans. You may also need to sell assets to pay off debts. It’s important to work with an experienced attorney who can guide you through the process and help you make the best decisions for your situation.

You still have options even though the estate is insolvent.

Dealing with an insolvent estate can be overwhelming, but it’s important to remember that you still have options. The costs of administering the estate (including reimbursement for your time and expenses, and for your legal fees) is paid first … before creditors. (See A.R.S. 14-3805.) Another option is to negotiate with creditors to settle the debts for less than the full amount owed. It’s important to work with professionals who can help you navigate these options and make the best decisions for the estate.

Prioritizing Debts and Payments.

When dealing with an insolvent estate, it’s important to prioritize which debts to pay first. In Arizona, costs and expenses of administration (such as legal fees, your fees as executor or personal representative, and accountant fees) get paid first. Then reasonable funeral expenses get paid Then debts and taxes with preference under federal law (federal taxes for example) get paid. Then reasonable and necessary medical and hospital expenses of the last illness of the decedent, including compensation of persons attending him. Then state taxes. And then all other claims.

It’s important to work with a professional to ensure that debts are being prioritized correctly and payments are being made in a timely manner.

Selling Assets to Pay Off Debts.

In some cases, it may be necessary to sell assets in order to pay off the debts of an insolvent estate. This can include selling property, vehicles, or other valuable items. It’s important to work with a professional appraiser to determine the value of these assets and to ensure that they are sold for a fair price. Any proceeds from the sale of assets should be used to pay off debts in the order of priority outlined above. It’s important to note that selling assets may not always be enough to cover all of the debts of an insolvent estate, and additional measures may need to be taken.

Seeking Professional Help.

Dealing with an insolvent estate can be a complex and overwhelming process. It’s important to seek the help of a professional, such as an estate lawyer, who can guide you through the process and ensure that all necessary steps are taken. If you are dealing with someone who died in Arizona or had property in Arizona, give us a call today at 602-443-4888. We can help you navigate any legal issues that may arise and ensure that the estate is handled in accordance with the law. Don’t hesitate to reach out for help if you’re dealing with an insolvent estate.



Founding attorney Paul Deloughery has been an attorney since 1998, became a Certified Family Wealth Advisor. He is also the founder of Sudden Wealth Protection Law.