After you die, you may think creditors will have little recourse to collect the money you owe them. That is not entirely true.
While the size of your estate will dictate whether your creditors receive payment, the Ohio Bar Association explains that the court has the final say. In fact, the law outlines the order in which to pay out debts from your estate. Your executor should never pay any bills until the court makes its ruling.
It is the general rule that your executor will pay all debts and then whatever is left over in your estate goes to your heirs. This may be misleading, though, as it makes it seem as if your heirs will receive nothing if your debts owed are more than your estate.
The law sets an order of payment according to the class of debt. It is similar to how the trustee pays debts in a bankruptcy case.
Order of payment
The first debts paid from your estate are administration costs and expenses for your funeral and burial costs. The court only allows up to $7,000 total for final costs.
Next in line is your family. Your direct dependents, such as your wife and minor children, will receive $40,000 of support. If this depletes your estate, then that ends debt repayment.
If you still have funds left, next in line is payment for your last medical expenses and an additional funeral payment of $2,000. The remaining bills paid include nursing home bills and state and Medicaid payments. Finishing up the list are manual labor expenses for one person up to $300 and then every remaining debt.