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What Are the Rights of Creditors in Probate?

4 min read
Philip Ahn, Attorney

by Philip Ahn, Attorney

Creditors in probate have the right to file valid claims for debts the deceased person owes. The deceased’s personal representative, or executor, must properly notify the estate’s known creditors and diligently seek ascertainable creditors, including credit card companies, to facilitate legitimate claims.

Unsecured debts, such as medical expenses, may be paid from the estate’s funds. If debts exceed the estate’s assets, family members or beneficiaries are unlikely to be personally liable for the decedent’s debts.

Rights to Challenge Denied Claims

Estate creditors seeking money owed to them have a legal right to pursue their claims against both probated and unprobated assets.

If a claim is denied, especially for assets like homestead property or bank accounts, the potential creditor may begin a complex and potentially costly process to challenge these denials. The decedent’s heirs and other interested parties must be properly notified of these actions.

In cases where the deceased’s debts remain unresolved, a tort case may arise as creditors seek to secure the property necessary to cover these debts. Exempt property and other assets may be at stake in this process.

It’s important to note that the outcome of a challenge depends on whether the estate has enough funds to satisfy equitable distribution of the claims.

Fraud Defense and Avoiding Estoppel

A creditor possesses certain estoppel and fraud defense rights in probate. A creditor relies on executors to diligently handle the estate’s administration by providing direct notice to known creditors, and publishing notices to alert potential unknown lenders. If this does not occur, it could be the basis for a creditor claim.

If an estate involves community property or payable on death assets, creditors may be concerned about quickly securing their rights. When a decedent’s surviving spouse is involved, family allowance and funeral expenses may be at play.

There are situations where a creditor may be estopped from asserting their claims:

  • If a creditor fails to make diligent efforts to file a claim within a specified deadline, they may be held liable for their lack of action.
  • A creditor who engages in fraudulent or deceptive practices may also find their claims challenged on the grounds of fraud protection.

In summary, while creditors and executors have rights in estate administration, they must adhere to legal deadlines and conduct themselves transparently. Failure to do so can affect their abilities or claims.

Executor Malfeasance During Probate

Creditors, as individual entities, look to the executor to fulfill an estate’s obligations and clear the decedent’s debt.

As the estate executor, the personal representative must carefully manage the estate’s assets to address each creditor’s claim. A creditor’s ability to file a claim against an estate is crucial to ensuring their debt is acknowledged and satisfied. 

Creditors have the right to hold an executor accountable when handling a deceased individual’s estate, especially if the executor is acting in bad faith. 

How Are Executors Supposed to Address Creditor Claims?

The representative must diligently review each creditor’s claim to ensure its legitimacy. The estate’s assets should be used systematically to satisfy the decedent’s debt obligations.

The executor is generally permitted to liquidate estate assets to settle money owed by the estate. When a creditor holds a valid debt against the estate, the executor may use the assets to satisfy these obligations.

However, the executor must adhere to legal and ethical guidelines in the process, ensuring that the liquidation is conducted transparently and fairly, ultimately allowing for the proper distribution of the estate’s assets among valid creditors in settling the debt.

If probate is contentious, then probate court will play a role in resolving estate matters. Probate court will be the ultimate judge when assessing the validity of each creditor’s claim, and ascertaining that the estate’s assets are fairly distributed to settle any outstanding debt.

Do Inheritors Bear Responsibility for Estate Debts?

Inheritors typically do not bear direct responsibility for an estate’s debts. Creditors generally look to the assets within the estate for repayment. 

If the estate’s assets are insufficient to cover the debts, the creditor may not pursue the inheritors personally (assuming inheritors were not a part of foul play during probate proceedings).

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