Texas Probate Debt Payment Priority: The Order Executors Must Follow

When someone dies in Texas, their debts do not simply disappear — but neither do all debts carry the same weight. Texas law requires executors to pay estate obligations in a specific order before distributing anything to beneficiaries. Get the order right and you are protected. Get it wrong and you can be held personally responsible for the shortfall.

Texas Estates Code § 355.102 sets out the priority classes for paying claims against an estate. This guide explains each class, what happens when the estate cannot cover everything, and how to protect yourself as executor.

Why Priority Order Matters

In most estates, there is enough money to pay all debts and still leave something for beneficiaries. In that case, the order does not create much practical tension — everyone gets paid.

The priority order becomes critical in two situations:

Insolvent estates — where debts exceed available assets. Someone will not get paid, and the law determines who.
Premature distributions — where an executor distributes assets to beneficiaries before all debts are resolved, leaving nothing to pay a creditor that should have been paid first. The executor can be personally on the hook for that mistake.

Understanding the order also helps you know when it is safe to make final distributions. Do not distribute to beneficiaries until the creditor claims period has expired and all valid claims have been resolved.

The Seven Priority Classes Under Texas Estates Code § 355.102

Texas law organizes estate debts into seven classes. Each class must be paid in full (or pro rata if funds are insufficient within that class) before paying anything to the next class.

Class 1: Funeral Expenses

Funeral and burial expenses are the first claim against the estate, ahead of every other creditor. Texas law does not specify a dollar cap, but it requires that funeral expenses be reasonable given the circumstances of the estate.

What qualifies: funeral home charges, burial or cremation costs, a modest headstone, transportation of remains, and similar customary expenses.

If the family arranged an unusually expensive funeral relative to the estate's size, the executor can — and should — limit reimbursement to what is reasonable. Document the basis for any reduction.

Class 2: Expenses of Administration

The costs of actually running the probate proceeding come second. These are the expenses that make estate administration possible and include:

Court filing fees
Attorney fees for the estate
The executor's own compensation (if taken)
Appraisal and accounting costs
Publication fees for the Notice to Creditors
The cost of any surety bond required by the court

Administration expenses are paid before any creditors because without administration, there would be nothing to pay anyone.

Class 3: Secured Claims (When Collateral Is Not Sold)

Secured creditors — mortgage lenders, car loan companies, anyone holding a lien on specific estate property — occupy Class 3. Their claim is backed by collateral, so they have options the estate and unsecured creditors do not.

The Class 3 classification applies when the estate is retaining the collateral rather than liquidating it. The estate must either continue making payments on the secured debt or pay it off. If the estate decides to surrender or sell the collateral, the secured creditor is paid from the proceeds of that sale, separate from the priority framework.

If a secured debt exceeds the value of the collateral, the excess becomes an unsecured deficiency claim and drops to Class 7.

Class 4: Claims for Personal Property Taxes

Unpaid property taxes on personal property (as distinct from real property) occupy Class 4. Real property taxes are typically a lien on the property itself and are handled through the sale or transfer of the property rather than as a separate claim against the estate.

Class 5: State and Federal Taxes

Tax obligations owed to the State of Texas or the federal government come next. In practice, this primarily means:

The decedent's final federal income tax return (Form 1040)
Any federal estate tax (Form 706) — applies to estates over $15 million in 2026
Any other outstanding tax liabilities

Texas has no state income tax and no state estate tax, so the state tax claims here are narrower than in many other states. See our Texas federal estate tax guide for more on when Form 706 is required.

Class 6: Medical and Hospital Expenses of the Last Six Months

Medical expenses incurred during the last six months of the decedent's life receive a higher priority than general unsecured debts. This covers hospital bills, physician fees, hospice charges, prescription costs, and similar expenses from the final illness period.

Medical expenses from before that six-month window are unsecured Class 7 claims. Keep this distinction in mind when evaluating medical bills from longer illnesses.

Class 7: All Other Claims

Everything that does not fit into a higher class lands here — credit cards, personal loans, utility arrears, older medical bills, civil judgments, and most other unsecured debts. Class 7 is the last category paid, and in an insolvent estate, Class 7 creditors often receive partial payment or nothing.

When the Estate Cannot Pay All Debts

An estate is insolvent when its total assets are worth less than its total debts. This happens more often than people expect, particularly in estates where most of the deceased's wealth passed outside of probate (through life insurance, retirement accounts, or joint accounts) while debts remained in the estate.

In an insolvent estate:

Pay each class in full before moving to the next
If funds run out mid-class, creditors within that class share pro rata (each receives the same percentage of their claim)
Beneficiaries receive nothing until all valid debts are resolved — in a truly insolvent estate, beneficiaries receive nothing at all
Do not distribute anything to heirs or beneficiaries until the estate's solvency is confirmed

Example: An estate has $15,000 in total assets. Funeral expenses were $6,000 (Class 1). Administration costs are $4,000 (Class 2). That leaves $5,000. There is a $3,000 personal property tax claim (Class 4) and $8,000 in credit card debt (Class 7). The tax claim gets paid in full. The credit cards get $2,000 of their $8,000 — 25 cents on the dollar. Beneficiaries get nothing.

Homestead and Exempt Property Are Protected

One important feature of Texas law: the homestead is not available to most creditors, regardless of the estate's solvency. The surviving spouse and minor children retain the right to occupy the homestead even in an insolvent estate. Most creditors cannot force its sale.

Similarly, certain exempt personal property is set aside for the surviving spouse and minor children before any creditor claims are paid. This includes furniture, vehicles, tools of trade, and other categories listed in Texas Estates Code § 353.051.

See our Texas homestead exemption guide and Texas exempt property guide for details.

The Family Allowance

In addition to exempt property, the court may set aside a family allowance (Texas Estates Code § 353.101) to support the surviving spouse and minor children for up to one year. This allowance is treated as part of the administration expenses and paid before most creditor claims.

Executor Personal Liability

This is the section executors need to read carefully.

An executor who pays debts out of the statutory order — particularly one who distributes assets to beneficiaries before paying valid creditor claims — can be held personally liable for any resulting shortfall. The protection Texas law gives to executors assumes they follow the rules.

Specific risk scenarios:

Paying credit card debt (Class 7) before confirmed tax liabilities (Class 5) are known or resolved
Making final distributions to beneficiaries before the 4-month creditor claims period expires
Paying lower-priority medical bills before higher-priority funeral expenses are addressed

The safest practice: do not make final distributions to beneficiaries until you have a complete picture of all debts, the creditor claims period has expired, and every valid claim has been paid in priority order.

When claims are large, disputed, or unexpected, consult a probate attorney before taking action. The personal liability exposure is real.

Practical Steps for Executors

Step 1: Complete the inventory first. Know what the estate is worth before evaluating claims. File your inventory within the required 90 days under Texas Estates Code § 309.051.

Step 2: Publish Notice to Creditors. This starts the clock on the 4-month creditor claims period. Known secured creditors must also receive direct written notice within 60 days of your appointment.

Step 3: Do not pay Class 7 debts early. Wait for the claims period to expire and for tax liabilities to be confirmed before paying general unsecured debts. Higher-priority items may appear later.

Step 4: Evaluate every claim. Just because a creditor files a claim does not mean you must pay it. Invalid, inflated, or late-filed claims can be rejected.

Step 5: Pay in order, document everything. Keep a written record of every payment, the priority class it belongs to, and when the claims period expired.

Frequently Asked Questions

Does the family have to pay the deceased's debts from their own money?

No. In Texas, debts belong to the estate, not to surviving family members individually. A family member is only responsible for a debt they personally co-signed or held jointly.

What if a creditor contacts me directly before I've been appointed executor?

You have no obligation to pay anything at that stage. Once appointed, follow the statutory priority order. Do not let a creditor pressure you into paying out of turn.

Can the executor negotiate down a debt?

Yes. Executors can negotiate with creditors, and many creditors — especially those in Class 7 — will accept less than the full amount when the estate is insolvent or limited in assets.

Are secured debts paid first?

Not necessarily. Funeral expenses and administration costs come before secured debts in the Texas priority order. Secured creditors do have the ability to foreclose on their specific collateral regardless of other estate claims, but as a claim against general estate funds, they sit at Class 3.

Related Guides

Sources:

"Texas Estates Code § 355.102 — Classification and Order of Payment of Claims," Texas Legislature, 2025, https://statutes.capitol.texas.gov/Docs/ES/htm/ES.355.htm
"Texas Estates Code § 353.051 — Exempt Property," Texas Legislature, 2025, https://statutes.capitol.texas.gov/Docs/ES/htm/ES.353.htm
"Texas Estates Code § 353.101 — Family Allowance," Texas Legislature, 2025, https://statutes.capitol.texas.gov/Docs/ES/htm/ES.353.htm

This guide provides general information about debt payment priority in Texas probate. Consult with a Texas probate attorney for advice specific to your situation.