Creditors may file claims against estates for unpaid debts

During probate, executors may need to handle claims filed against estates to recover unpaid debts from the deceased’s assets. The Superior Court of California website notes that an estate’s personal representative also owes a duty to notify the deceased’s known creditors.

Executors generally notify those creditors with outstanding debts that may recover the amounts owed through the probate court. Having access to the deceased’s most recent billing statements could help the estate’s personal representative confirm which creditors to contact. However, a personal representative (executor or administrator) does not need to go through heroic lengths to find creditors.

Notifying creditors of their rights to file claims

Personal representatives have a duty to notify known or reasonably ascertainable  creditors that a probate has been started and that the creditors may make a claim for money owed by the decedent. This means you cannot intentionally avoid notifying creditors by ignoring their existence, but you do not have to take the role of a private investigator going through great lengths to find every possible creditor. Secured and unsecured creditors may receive notices, as well as individuals who loaned loaned money to the deceased.

There are many wrinkles in how creditors may be paid or not paid. In some cases a personal representative may not need to accept a formal creditor’s claim in order to pay a just debt. And in other cases, the formal creditor’s claim process may be in the best interest of the estate – especially if a personal representative has doubts about whether a claim is completely valid. By sending out a formal Notice of Administration form and creditor’s claim, a personal representative effectively restricts the time in which creditors can come forward.

Using assets from the estate to settle debts

As noted by Bankrate, debts paid from the estate may reduce the value of assets for the deceased’s beneficiaries. Therefore, the proper handling of creditor’s claims amounts to a duty the executor has not only to the creditors, but also to the beneficiaries of the estate. In some cases, executors may sell assets from the estate to cover unpaid debts. It may even be advisable to borrow money if the estate has real property you want to keep but there are creditors who need to be paid.

If the deceased owes taxes, representatives must contact the local or federal tax agencies. Medical professionals and hospitals may also file claims to recover from the estate before the court distributes assets to beneficiaries.

Handling creditors’ claims is an essential part of the probate process. An experienced probate attorney can assist a personal representative in navigating this important issue in accordance with the law and the best interests of the estate.