As part of the probate process, businesses who extended you credit over your lifetime have an opportunity to come forward with your debts and be paid out of your estate. If no one opens your estate to probate, after a period of time, a creditor can apply to probate a debtor’s estate. In general, however, a creditor must present their claim to the personal representative (PR) of a probate estate within 90 days, from publication of a notice to creditors
Creditor Rights in Probate
Creditors have the right to be paid during probate so long as they present their claims in a timely fashion. If they present their claims incorrectly, then the PR is not required to pay the claim and, if they do so, may find themselves liable to other beneficiaries. Creditor claims are paid before the assets of the estate are distributed to the beneficiaries, hence the deadline for filing a claim with an estate.
The personal representative is responsible for doing a thorough job searching through financial records to try and determine and notify all creditors, file an affidavit with the court with this information, and then settle any claims the creditors present. Often, the PR will publish a notice to creditors in a local paper and it is from the date of this publication that the creditor 90-day period runs. Once they miss this window, and assuming the PR handles the estate correctly, creditors cannot demand payment from the estate or from family members to whom the estate was distributed. The PR can shorten this period to 60 days if they send notice directly to the creditor.
Order in Which Creditors are Paid
When an estate has multiple creditors of different types, then their claims are settled in a certain order. For smaller estates, this often means that the attorney or PR handling the estate negotiates settlements with the creditors where only a percentage of the outstanding debt is paid. This includes settling unpaid taxes, medical bills, funeral expenses, the cost of the attorney assisting with probate, and other regular bills and debts.
Failure to pay debts appropriately can lead to creditors placing liens on property, such as the house of the deceased person. These liens prevent the property from being sold, transferred, or refinanced without the lien being first resolved. The government can also place liens that result from unpaid estate and gift taxes.
Exceptions for Creditors
There are some exceptions to the rules that govern creditor’s actions during probate, most noticeably regarding jointly held debt. If a debt is jointly held, then the survivor continues to be responsible for paying the debt and the creditor does not go through the probate process. For jointly held marital homes, this is the most common arrangement.
Handling an estate with multiple creditors doesn’t need to be hard, but guidance can be key. The estate team of lawyers from Dunn Law Firm can help by understanding your full financial picture and putting in place systems to help your PR achieve your goals. To learn more, reach out to the Dunn Law Firm by calling (435) 628-5405 to set up a free consultation today.