Claims and Secured Property in Probate
Previously (here), I have discussed the fact that not all claims against probate estates are created equally. Rather, under Illinois law, some claims have priority over others. For instance, attorney's fees, funeral expenses, and other administrative expenses get paid first (that is, they are first class claims). Most other claims are seventh class claims.
That being said, it's important to realize that secured property is not subject to the above classification system. As two commentators put it*,
Secured collateral that is in the possession of the representative is not a part of the probate estate and does not become a part of the probate estate until the secured lien has been discharged. Once the lien has been discharged, the formerly secured collateral becomes part of the probate estate and is available to other creditors of the estate.
To take an example: John Smith dies with a 200K house as his sole asset, a 100K mortgage on the house, and 200K in additional valid claims. His personal representative must pay off the mortgage first, and then use the remaining 100K equity in the house to satisfy the 200K in additional valid claims.
*See Richard A. Campbell and Mary C. Talarico, "Claims Against the Estate," Chapter 4 in Illinois Estate Administration (IICLE 2003).
