Creditor Claims On Your Estate In Probate
As a general rule, when you pass, your relatives don’t have to pay your debt, and they don’t automatically inherit your debt. Your collectors can’t start going after your relatives, just because you pass away (although they can, if your relatives have actually signed on loans with you).
However, creditors can, indirectly go after your relatives, by trying to attack your estate. Simply put, if a creditor gets money from your estate for a debt that you owe, that’s money that your relative doesn’t get, so it’s like the creditor is taking money from your relatives, at least in an indirect way.
How Creditors get Paid in Probate
Good estate planning tries to minimize creditors’ ability to take from your estate, to allow your relatives to inherit as much of what you leave to them as possible.
In some cases, your relatives can opt to sell your property and pay off your debts, and then divide the remainder of your estate amongst them.
The personal representative or executor of your estate will notify your creditors that you have passed, or else will notify your probate attorney, who will notify your creditors. Note that this is simply notice to creditors—notifying them doesn’t automatically mean they are owed money, or that their debt is valid, or that they even have to be paid.
Notified creditors must make their claim on the estate, by filing a claim in the probate court where the estate is being probated.
Time Limits for Making Claims
Creditors have about 60 days after being notified of the death and the probate case to make claims. This is if the will is probated—that is, there is an actual probate case. If there isn’t a probate case—for example, if the estate is in trusts, where probate is avoided—creditors have one year from being notified of the death, to make any claims. If creditors miss these deadlines, they waive their right to be paid from the state for the debt.
Contesting Creditor Claims
Even if a creditor makes a timely claim, that doesn’t mean they have to be paid, because your estate has a right to contest the validity of the debt or the amount owed. If the executor or personal representative notifies the creditor that they dispute the amount owed, the creditor then has 90 days to file a claim against the estate, for the amount owed.
Many creditors won’t bother fighting for the debt, in the event it is contested. They also may settle for much reduced amounts than what is owed.
Not all creditors get paid, because there is an order of priority for creditors who make estate claims. Generally, federal taxes have priority followed by probate expenses, funeral expenses, and then general creditors. That means that many creditors in lower “tiers” may not get anything from the state.
Call the Torrance wills attorneys at Samuel Ford Law today to discuss the probate process and handling creditor claims on your estate.