Many people operate under the misconception that debts will go away when they die, but that may not be true in all circumstances. The Consumer Financial Protection Bureau clarifies that the legal and financial obligations of a decedent shift to the estate upon death, in the same way that probate assets become part of the person’s estate. Individual family members would never be responsible for paying the debts of a deceased relative, but creditor claims can have a considerable effect on estate administration.
You may be faced with creditor claims if you are the executor in a will or appointed as personal representative by the probate court in an intestate estate. However, debts owed by the estate may also impact your interests as a beneficiary or heir. A probate and estate administration attorney can provide details on how the laws affect your rights, though it is useful to review these things to know about creditor claims.
Notifications to Creditors
Among the initial tasks of the personal representative is gathering information on all assets and debts of the estate. The decedent likely had documentation regarding bills owed for utilities, credit card payments, and other debts. There should also be paperwork on mortgages, vehicle loans, and larger lines of credit. With the exception of jointly owned assets, the estate is responsible for paying these amounts to known creditors.
In addition, the estate administrator will be required to publish a notice to unknown creditors. Publication puts them on notice that they need to file a creditor’s claim to get paid.
Paying Verified Claims
The representative of the estate is obligated to pay amounts due when the creditor provides proper information about the debt. The estate is only responsible for verified claims, so a company must include documentation regarding the debt when filing a creditor claim in probate court.
The estate is in the position of a debtor when a creditor files a claim, so the administrator can defend on the same grounds as a living person. A representative may contest the claim on such grounds as:
- Illegal debt collection practices;
- Insufficient evidence of a debt; or,
- The debt belongs to someone else or is attached to a non-probate asset.
The probate court rules on contested creditor claims and will order the administrator to pay when the debt is properly verified.
Insufficient Assets in the Estate
The claims of creditors take priority over distributions to heirs or beneficiaries, so your share could be reduced if the representative needs funds to pay. If necessary, the representative may be required to sell assets to pay creditors.
Discuss Details with a Probate and Estate Administration Lawyer
It is rare that a person would pass away with zero debts, so various interested parties may have to address creditor claims during the probate process. For additional information about how the laws affect your interests, please contact Francois Williams Legal LLC. We can set up a consultation to listen to your story and determine the best strategy for protecting your rights.