Creditor Claims In Probate: The Basics

One of the goals of good estate planning is to avoid the probate process. But sometimes probate is necessary, and when it is, don’t be surprised if creditors come knocking, asking for their share of whatever was supposed to be inherited by the deceased’s beneficiaries.

Secured Creditors

One thing to keep in mind is that deceased may have had secured creditors—particularly those that carry mortgages, and especially, reverse mortgages. Many mortgagees see death as either an automatic default, or if they do not, it won’t be long before the next payment on the mortgage is due.

Unlike other creditors, a mortgage company or secured creditor, doesn’t have to make any claim in probate, before it starts the foreclosure or repossession of property. Some will hold off when they see that a probate case has been opened, which is one reason to get the process started as quickly as possible.

Notification of the Case

All creditors must be notified of the opening of a probate case, and it may take some time to gather that information, and ascertain who all of the creditors are. Once notified, creditors have between two and four months to file a claim. Without notifying creditors, they have much longer to file claims—up to one full year.

Remember that creditors may not just be credit cards or car loan companies or medical providers. They may be lesser known creditors, like individuals who are owed money, or landlords, or handymen—basically, anybody who could have been owed money, even if not thought of as a traditional “creditor.” Creditors also include anybody making, or threatening to make, any claim or lawsuit against the deceased, even if there is no actual debt owed yet.

When a Claim is Filed

If a creditor does file a claim after being notified, the personal representative of the estate must decide whether to accept or reject the claim; doing nothing constitutes an automatic rejection after 30 days. If the representative notifies creditors that the claim is rejected, the creditor has only 90 days to commence a lawsuit, otherwise the claim is barred.

Generally, the representative can opt to accept or reject the claim without court permission or approval, so long as the representative has no conflict of interest (i.e., the representative is also a creditor).

Creditors must provide proof of the debt, including documentation, and the representative has a right to ask for that information. The representative is also charged with making sure that claims are filed by the creditor in a timely manner, and the representative can reject any creditor claims that are not.

If the representative does reject a claim, and a lawsuit is filed by the creditor, the case proceeds as it would in any civil court, with the representative able to assert whatever defense to the debt that the deceased would have been able to make.

Questions about your probate or estate planning needs? Call the Torrance will and estate attorneys at Samuel Ford Law today for help.

Sources:

selfhelp.courts.ca.gov/jcc-form/DE-172

law.justia.com/codes/california/2007/prob/9100-9104.html