What happens if an estate cannot pay its debts?

When an estate is unable to pay its debts, the creditors must be paid in a specific order as established by Virginia law. The sequence must be observed and creditors must be paid in full or in part before any assets can be distributed to the beneficiaries. In Virginia, creditors must be paid from the following sources in the following order: 1. Assets that are specifically allocated to satisfy a particular debt must be used to pay the debt before any other debts are paid. 2. Reasonable funeral and other administrative expenses. 3. Debts and taxes with priority under federal law, such as unpaid federal taxes. 4. Any outstanding mortgages, liens, or other charges against real property. 5. Debts owed to the Commonwealth of Virginia. 6. All other debts and claims. If there are not enough assets in the estate to pay all creditors in full, then they must be paid in pro rata, meaning that each creditor must receive a portion of what it is owed in direct proportion to what it is owed by the estate. For example, if a creditor is owed $10,000 and the estate has only $5,000 to pay the creditors, then that creditor is entitled to receive $5,000, or half of what it is owed.

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