Here’s How Creditors Collect And Get Paid In Probate

There are a lot of strategies to avoid having to pay the creditors of a deceased out of the proceeds of what the deceased left to beneficiaries. A lot of estate planning vehicles simply cannot be touched by creditors, and a lot of estate planning strategies will avoid probate, and thus, avoid the notification that goes to creditors when an estate is probated.

But it does happen that an estate needs to be probated, and thus, creditors need to be notified. If the creditors respond to the notification in a timely manner, here is what will happen and how the deceased’s creditors will be paid.

The Order of Priority

It may happen that the debts owed are low, and the assets are significant, and thus, the executor or personal representative may just want to pay off the creditors, and expedite the process of getting what assets remain to beneficiaries as quickly as possible.

But you cannot just go paying creditors. Generally, you need court permission to pay creditors—especially when there is money to pay some, but not all, creditors.

When that happens, there is a priority order in which creditors get paid. When one tier gets paid, the next does, until there are no more assets to pay creditors in the next tier.

1. The first tier are government debts, owed to the state or federal government
2. Secondly come expenses necessary to administer the estate, such as appraisal fees, accounting fees, or attorneys fees, among others
3. Secured debts like mortgages
4. Funeral expenses will get paid
5. Bills related to sickness, healthcare, or illnesses of the deceased
6. Money owed to family members for support
7. Last on the list, are unsecured debts, like credit cards, or other debts owed to creditors

Unpaid Creditors

In many cases, creditors simply won’t get paid. In that case, the creditor does have the legal option of going after the deceased’s spouse—but only in limited circumstances.

Creditors can seek to collect on half of any property that was co-owned by the married couple. They can also collect on property that was owned by the deceased, that may not have been subject to probate.

Of course, a surviving spouse that cosigned on a loan or a debt, will remain liable for the debt, and a creditor can collect on those claims against the surviving spouse. But a deceased’s creditor cannot go after a surviving spouse’s own (non marital) property or assets.

In no instance can creditors pursue property that belongs to the deceased’s parents, siblings, or other relatives.

Challenging Claims

Remember that creditor claims can be challenged by the estate in probate court. This works much the same way as any debt collection lawsuit would.

Common defenses to debt include the failure to account for prior payments, expiration of the statute of limitations, or the failure to have the necessary and proper documentation to show the creditor owns, and can thus collect on, the debt.

Call the Torrance probate will and estate attorneys at Samuel Ford Law today to handle creditors in your estate plan, or in probate court.

Source:

saccourt.ca.gov/probate/decedent-estate.aspx