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In Chicago, What Does It Mean to Have an Insolvent Estate?

What does it mean for an estate to be insolvent? How should representatives handle an insolvent estate? How does probate work for an insolvent estate, and are there any specific issues that could crop up?

Let’s look at these all-too-common questions in a little more depth:

What Is An Insolvent Estate?

In Illinois, an estate is considered to be insolvent when the debts of the deceased person exceed the total value of the assets in their estate.

It goes without saying that, if you’re serving as the executor or representative of an estate, this can prove to be a worrying scenario. After all, you’re the person who is largely tasked with handling creditors, paying off the estate’s outstanding debts, and making disbursements to the deceased’s family and friends.

With this in mind, many people are hesitant to pursue probating an insolvent estate when the individual leaves behind more debts than assets. Some even consider walking away from the estate – and all of its creditors – entirely.

However, in many cases, there may still be reasons to go to the probate courts and take on the process of resolving the estate. Why? Well, oftentimes, the estate does have some value – even though it may not be enough, or the right type, to pay off all of an individual’s debts.

For instance, by probating an estate, an individual may be able access enough of the deceased’s savings or assets to make partial satisfaction to the estate’s creditors, while also being able to cover other important expenses - such funeral arrangements, attorney’s fees, court fees, and perhaps even an administrator’s or executor’s fee as compensation for their own time. In this way, the estate can be resolved – allowing for some degree of personal and financial closure for the decedent’s loved ones.

What to Know About Probate for an Insolvent Estate

Should an estate representative choose to pursue probate in order to resolve an insolvent estate, there are a few important considerations to bear in mind under the Illinois Probate Act.

First, bear in mind that the representative for an insolvent estate must, at a certain point, send a court notice to all known creditors of the estate, informing them of its insolvency. Typically, this notice discloses the amount and value of the assets of the estate, the debts of the estate, and the amount that they are proposing to distribute to the creditor. This step generally occurs after the estate’s assets have been gathered and appraised, and all debts have been discovered.

Second, Illinois law has established the priority of payment for expenses and claims against an estate. Broadly speaking, the state classifies claims in the following order of importance:

  1. Funeral and burial expenses, expenses of administration, and statutory custodial claims
  2. Awards due to the surviving spouse and/or child
  3. Debts due the United States
  4. Money due to employees of the decedent (with some restrictions)
  5. Money and property received or held in trust by decedent which cannot be identified or traced
  6. Debts owed to the state, and any county, township, city, town, village or school district within the state
  7. All other claims (general creditors tend to fall into this last category)

The Importance of a Probate Pro

With all this being said, it’s important to realize that every estate administration case is unique.

Recognizing the need for guidance and an impartial eye, many people find it beneficial to bring on a knowledgeable, experienced professional to assist with matters of estate administration.

We know that there are many questions that arise when a loved one dies. Our team can guide you through the process and assist with any decisions that need to be made. We can assist with the basic steps of administering the probate estate, including matters of:

  • heirship
  • wills and trusts
  • independent or dependent administration
  • estate accounting
  • distributions

In addition to simply administering the probate estate, we can assist in other matters, including transferring or clearing title to real or personal property, as well as collecting assets and disposing of any unwanted property. Don’t hesitate to reach out today to start the conversation!

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