The Six-Level Priority System
Not every estate has enough money to cover all its debts. When assets fall short, the personal representative cannot pick and choose which creditors to pay. Arizona law sets a fixed order.
If the applicable assets of the estate are insufficient to pay all claims in full, the personal representative shall make payment in the following order: 1. Costs and expenses of administration. 2. Reasonable funeral expenses. 3. Debts and taxes with preference under federal law. 4. Reasonable and necessary medical and hospital expenses of the last illness of the decedent, including compensation of persons attending him. 5. Debts and taxes with preference under the laws of this state. 6. All other claims.
A.R.S. § 14-3805(A)Administrative costs, including court fees and professional compensation, are paid before anything else. Funeral expenses come next. Federal obligations like income taxes or federal liens take third priority. Medical bills from the decedent's final illness rank fourth. State-level debts and taxes are fifth. Everything else shares the bottom tier.
Equal Treatment Within Each Class
Within any single category, no creditor gets preferential treatment over another. A credit card company and a utility provider with claims in the same class receive proportional payments if funds run short. A debt that is already due does not jump ahead of one that has not yet matured.
No preference shall be given in the payment of any claim over any other claim of the same class and a claim due and payable shall not be entitled to a preference over claims not due.
A.R.S. § 14-3805(B)This structure matters for families. If an estate is close to insolvent, understanding the priority system helps set realistic expectations about what heirs will ultimately receive. The personal representative must follow this order, and paying claims out of sequence can create personal liability.