DEALING WITH CREDITORS
Sept. 11, 2015
It is not unusual that an estate that seems to have an overwhelming amount of debt turns out to have enough assets to pay the valid debts and distribute funds to the heirs or beneficiaries.
The process for dealing with a creditor varies based on the type of administration and the type of debt. A Dependent Administration is an administration in which all actions by the administrator must be approved by the Court.
An independent administration means that the Judge has little or no control over the actions of the administrator except for admitting the estate to probate, qualifying the personal representative of the estate (usually a person named in a will– who is called an executor) and approving the Inventory, Appraisement and List of Claims.
Assuming the Administrator in a Dependent Estate gives proper notice to the creditor, the creditor only has four months to file its claim once it is given notice of the administration by certified mail. Failure to file its claim with the Court Clerk within four months of notice by certified mail is also a bar to later assertion of the claim for payment.
In a Dependent Administration a creditor must file its claim with the Court Clerk and serve it on the attorney for the administrator. The Administrator has 30 days to allow it or deny it. If it is not allowed, it is automatically deemed denied. At that point the creditor has 90 days to file suit in the probate court or the claim is barred for failure to prosecute the claim in a timely manner.
The claim must be verified (sworn) and based on personal knowledge with all credits, offsets, charges, payments set forth. Failure by the creditor to provide adequate information to determine the validity of the debt is a good reason to deny the claim. If the creditor does not have the required information it cannot prove its claim at trial.
One point that secured creditors frequently forget is that the creditor is forced to choose between asserting its claim to the secured asset on which its lien is based or the right to payment of the claim and waiver of the lien on the asset.
In other words, do not let the debt collector take the car before the administration is opened. If they take the car beforehand the creditor will come back for payment of the loss on the sale of the car. If the creditor takes the car during probate that is all it gets, it loses its right to be paid on any loss on sale of the vehicle.
The process in an independent administration is not as formal. The claim does not have to be presented through the Court Clerk. There is disagreement as to whether the four month bar to the claim after notice applies. This is definitely one area of the law where it pays to consult your attorney and to follow the attorney’s advice.
The amount and type of debt is an important factor in choosing which type of administration will be used. I will write about how “exempt” assets are treated in probate in a later article.