Creditor Priority and Why It Matters

The end of life of a friend or family member means going through the grieving process, whether or not the death was sudden or long anticipated.  There are also many logistic issues that must be attended to, including probate. Probate is the official administration of the deceased’s estate, which includes gathering all of the assets, paying all the debts, and distributing what is left over to the heirs and beneficiaries.  The personal representative is the person responsible for making sure all of gets done in accordance with Minnesota law and the wishes of the deceased, if there is an enforceable will.  Personal representatives need to pay particular attention to creditor priority when administering the estate.

Creditor priority is the legal phrase used to refer to what order the creditors of the deceased must be paid.  Minnesota statute 524.3-805 sets out the order of creditor priority as follows:

  • Costs and expenses of the estate administration;
  • Reasonable funeral expenses;
  • Debts and taxes with preference under federal law;
  • Reasonable and necessary medical, hospital, or nursing home expenses related to the last illness off the deceased;
  • Reasonable and necessary medical and hospital bills for the year immediately preceding the deceased’s death;
  • Debts with preference under other state laws, including state taxes; and
  • All other claims.

The statute provides that if the estate has sufficient funds, all of these debts must be paid.  However, if there are not sufficient assets to pay all of the debts, that is when the priority of debts becomes even more essential.  In such a case, the personal representative must pay the debts of the estate in the order listed, and so the creditors who make up the end of the list will not get paid.  Moreover, there is no priority given to debts in the same class.  If the personal representative pays some of the debts in the wrong order of priority, he or she could end up being personally responsible for making sure the skipped, higher priority debt is properly settled.  Creditors are responsible for submitting their claims to the personal representative within a specific time frame.  The personal representative will then determine whether each debt is valid and allowable, or whether it should be “disallowed.”

We have extensive experience in helping our clients understand all processes in probate case. Call us today at 651-413-9568 to talk about your case.