After your loved one's death, you may be wondering what happens to their debts. If their estate passes through New Jersey probate, any debts they still owe must be accounted for and paid. This can affect the total inheritance, the will if there is one, and intestate succession if there is no will. Knowing how to handle the debt properly can make all the difference and reduce the level of stress you must deal with. 

At Pedrani Law LLC, our New Jersey estate planning lawyer is ready to help guide you through it all. He knows how to help handle the decedent's assets and debts throughout the probate process. Reach out today to get started. 

What Does the Executor Do in New Jersey Probate?

In New Jersey, the executor is responsible for managing the estate. One of their main duties is to identify and settle the decedent's debts. This must occur before distributing assets to any beneficiaries. This includes:

• Identifying reasonably ascertainable creditors

• Reviewing claims

• Validating any claims

• Paying debts out of the estate's assets

• Filing final income reports

• Filing any required federal estate tax return and the New Jersey inheritance tax return (Note: New Jersey imposes no estate tax for deaths on or after January 1, 2018.)

Executors must follow New Jersey probate laws and fiduciary standards. Failure to do so can result in personal liability.

Common Types of Debt You Might See While in Probate

Common debts that you could encounter include, but are not limited to:

• Credit card balances

• Medical bills

• Personal loans

• Mortgages and home equity loans

• Auto loans

• Utility bills

• Judgments or liens

• Taxes owed to the federal or state government

These debts do not automatically disappear upon death. Instead, they may become claims against the estate.

Priority of Debt Payments: Who Gets Paid First

New Jersey law establishes an order for which type of creditor gets paid first. If the estate lacks sufficient assets to pay everyone, they are paid in the following general order:

1. Funeral expenses

2. Administrative expenses 

3. Debts for the reasonable value of services rendered to the decedent by the Office of the Public Guardian for Elderly Adults

4. Debts and taxes with preference under state or federal law

5. Reasonable medical and hospital expenses of the last illness of the decedent

6. Judgment entered against the decedent according to their respective priorities

7. All other claims

If the estate is insolvent, lower-priority creditors may receive partial payment or nothing at all.

What Happens to Secured Debts as Part of the Probate Process?

Secured debts, such as mortgages or car loans, are tied to specific assets. These debts must be paid if the estate intends to retain the asset. Otherwise, the creditor may repossess or foreclose. For example:

• If the decedent owned a home with a mortgage, the executor may sell the property to pay off the loan.

• If a beneficiary wishes to keep the home, they may assume the mortgage or refinance.

New Jersey does not require heirs to personally pay the decedent's debts unless they were co-signers or jointly liable.

Creditor Claims and Deadlines

Creditors must file claims against the estate within a specific timeframe. In New Jersey:

• Creditors typically have nine months from the date of death to file claims. If a debt becomes known after the 9-month deadline, the executor has no obligation to resolve it unless there are still remaining undistributed funds and the court, for good cause, directs the executor to do so.

• Late claims may be barred unless special circumstances apply.

Can Creditors Go After Beneficiaries?

For the most part, creditors cannot go after you as a beneficiary to the estate. However, under New Jersey law, heirs and devisees can be sued for the decedent's debts, but only up to the value of what they received from the estate.

To manage this potential liability, New Jersey uses a process called “refunding bonds and releases.” These documents require beneficiaries to repay funds if later debts or claims arise against the estate.

Additionally:

• Heirs and devisees can be liable up to the value received.
  
  

• Refunding bonds allow recovery if debts emerge after distribution.
  
  

• Spouses may be liable for necessary expenses (such as medical or living costs) if the debtor-spouse's assets are insufficient, a responsibility recognized under New Jersey's “doctrine of necessaries” case law.

Get Help with Debt in a New Jersey Probate Case

Knowing what to do can help you de-stress and handle the assets and debts correctly. After losing a loved one, the last thing you want to deal with is a complicated process to repay the decedent's debts. However, the right attorney can make this process accurate and painless as possible. You don't have to sift through the complicated financial and legal aspects of the estate by yourself. 

Our team at Pedrani Law, LLC can help you with New Jersey probate. Contact us today for a consultation.