My loved one had many creditors but doesn have many assets. Can his/her estate file bankruptcy?
The short answer is “no”. If an estate is insolvent (meaning more liabilities than assets) creditor’s claims will be paid proportionately based on what is available for payment to creditors after all other estate expenses. The type of claim filed will also dictate how much the claimant will receive. For example, administration expenses are paid first as level 1 claims, then funeral expenses as level 2 claims, then Federal debts and taxes as level 3 claims, hospital bills for the last 60 days prior as level 4 claims, and creditor claims falling near the bottom as level 8 claims. It is important to note that, with some limited exceptions, creditors must timely file a claim in the probate court if they want to collect. If there are not enough funds to satisfy all the claims, then the unpaid claims are compromised to what can be paid and the rest of the debt does not get paid. This is similar to discharging debt in a bankruptcy.
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