The Better Chancery Practice Blog

When the debts and expenses of the estate exceed the value of its assets, the estate is said to be insolvent, and there is a procedure for adjudication of insolvency, satisfaction of creditors, and payment of administration expenses that is spelled out in MCA § 91-7-261 through -268.

The estate is insolvent when its debts and the expenses of administration exceed the value of the real property and the other property that is not exempt.  You can find out more about exempt property here.

Either the administrator or a creditor may petition the court to adjudicate its insolvency.

MCA § 91-7-261 sets out the procedure to determine insolvency.  The administrator is required to “take proper steps speedily to ascertain whether the estate be solvent or insolvent.”  If the administrator finds that the estate is insolvent, she files a “true account” itemizing all of the personal estate, assets of every description, the land of the deceased, and all of the deceased’s debts.  Notice is given to the devisees or heirs, and the matter is presented to the court for hearing.  If the court determines from the account that the estate is indeed insolvent, the chancellor will order that the assets be sold and that the expenses of ” … the last sickness, the funeral, and the administration, including the commissions …” are first paid out of the proceeds,” and that any remaining proceeds be divided among the creditors ” … in proportion to the sums due and owing them respectively …”

The procedure for distribution of remaining proceeds among the creditors is provided in MCA § 91-7-269.  After the time to probate claims has elapsed, a notice is published for three consecutive weeks in a newspaper published in the county that the claims against the estate will be taken up by the court on a day and at a time certain, that any and all claims not required by law to be probated shall be filed with the clerk by a stated date, and that all creditors may attend.  A hearing is held at which the administrator may object to any claim, evidence is presented pro and con, and the court may either allow it in whole or in part, or reject it in whole or in part.  The administrator may file a verified application to be reimbursed for claims paid prior to the adjudication of insolvency, and the court shall treat them as if they had been properly probated.

MCA § 91-7-271 provides that the allowed claims shall be paid pro rata, and any creditor not paid within ten day of the court’s order shall have execution against the executor or administrator and the sureties on his bond.

Any suit pending against the executor or administrator at the time of insolvency does not abate, but may be prosecuted to final judgment, according to MCA § 91-7-273, but -274 bars suits from being filed after the estate is declared insolvent.  You should read -273 carefully for the effect of and payment of a judgment against the estate for suits that were pending when the insolvency is determined.