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When someone who owes you money dies, collecting that debt can become significantly more complicated, but it doesn't mean your claim is extinguished. Through a process known as probate, creditors are given the opportunity to enforce their claims against the decedent’s estate.  

In this guide, we will provide you with an overview of the probate process, discuss how to go about filing your claim, and how claims are prioritized for payout if the estate’s assets are insufficient to pay off its liabilities. Finally, we will explore some strategies for locating and accessing a decedent’s undisclosed or hidden assets.

Understanding Creditor Claims in Probate: Key Steps & Timelines

Upon a person's death, their estate, which encompasses all their assets and liabilities, enters a process known as probate. This process involves: 

  • Identifying and Collecting the Estate’a Assets: The executor or court-appointed administrator identifies and gathers all assets of the deceased, including property, investments, bank accounts, etc, (a process referred to as “marshaling”). 
  • Debt Settlement: Outstanding debts of the deceased and claims against them are paid out from the estate's assets in order of priority (discussed in detail below). 
  • Distribution of Remaining Assets: After the debts and claims are settled, the residuary estate, (i.e., any remaining assets) is distributed to the beneficiaries according to the deceased's will (or state intestacy laws, if there is no will).

As part of the probate process, the executor (or court-appointed administrator) has a legal duty to notify both known and unknown creditors of the proceedings. They achieve this through two primary methods:

  • Direct Notice to Known Creditors: The executor must directly notify any known creditors (i.e., those they can reasonably identify through the decedent's personal and financial records such as bills, bank statements, and legal documents) of the proceedings. The notice must include information on where, when, and how the creditors/claimants must file their claims.  
  • Publishing a Public Notice: The executor must publish a general notice in a locally circulating newspaper for a certain length of time to afford potentially unknown creditors an opportunity to learn about the probate proceedings, and advise them of how to submit their claims.

How and When to File Your Creditor’s Claim 

Whether you receive a notification directly from the executor of the estate or through a published notice, the notice should provide detailed instructions on how to submit your claim. This usually involves completing a creditor's claim form and attaching supporting documentation like invoices, contracts, or other evidence of the debt owed to you. If you learn of the probate proceedings through other means, you must be proactive. Contact the probate court to obtain the executor's information and case details so you can request the claim filing instructions. 

The importance of deadlines for filing your probate claims cannot be overstated, as missing them will generally result in the extinguishment of your claim. As we've discussed above, creditor notifications (whether direct or published in a newspaper) will include those deadlines as prescribed by statute. In this regard, as with nearly every other aspect of probate, each state has statutory time limits, often 3-6 months from when probate is opened or when the creditor is officially notified. Some states may have shorter deadlines for creditors who were aware of the death than those who were not. Additionally, many states have longer periods or grant extensions under certain extenuating circumstances, such as if a creditor was in the military and deployed overseas, or was out of the country, seriously ill, or otherwise incapacitated for an extended period of time. 

Priority of Claims and the Order of Distribution of Payments

People accumulate a lot of debt during their lifetimes, and after you take into account the extent of outstanding payments due on mortgages and car loans, medical bills, and outstanding credit card balances, as alluded to above, it is not uncommon that a deceased person's assets may not be enough to cover their debts (let alone the fact that there may be nothing left for the beneficiaries of their will). This is where the concept of priority comes into play. Essentially, the distribution of a probate estate follows a specific hierarchy of expenses, debts, and other claims. This order of priority, while subject to state-specific variations, generally looks like this:

  • Administrative Costs and Expenses: The first priority is given to the costs associated with administering the estate. This includes court fees, legal fees, executor or administrator fees, and any other costs incurred in managing and settling the estate.
  • Funeral Expenses: Funeral and burial expenses are usually next in line. Note that there’s often a statutory cap on the amount considered a priority under this category based on what is deemed reasonable for these purposes.
  • Taxes and Debts to the Government: This includes federal and state taxes owed by the deceased or the estate itself. Certain taxes, such as estate taxes or income taxes, have high priority, whereas others, such as local property taxes, have a lower priority. 
  • Secured Debts: Debts secured by collateral (e.g., mortgages and auto loans).
  • Judgments against the Decedent: If the decedent was subject to any court judgments, the claims arising from these judgments are paid next.
  • Medical Expenses: Some states prioritize medical expenses related to the deceased's final illness. The timeframe (e.g., last 60 days) and conditions can differ depending on jurisdiction.
  • Family Allowances: Some states provide a family allowance for the decedent's surviving spouse and dependent children to support them while the estate is being administered.
  • Unsecured Debts: These are debts not secured by collateral, such as credit card debts, personal loans, and medical bills not falling within the priority medical expenses category, which will usually paid out to the creditors pro-rata (i.e. proportionally based on the amount of their claim compared to the total pool of available funds). 

Tips For Locating a Debtor's Undisclosed Assets

As mentioned above, the executor or administrator of an estate has a legal duty to locate and account for all the decedent's assets, which form the basis of the probate estate and are used to pay off outstanding debts. However, sometimes assets are deliberately concealed or simply overlooked, remaining outside the formal probate process. This could be for a number of reasons, including:  

  • Deliberate Concealment: Sometimes, the decedent may have intentionally concealed assets to evade taxes or protect them from creditors. When an executor is also a close family member and beneficiary, they may have a vested interest in the continued concealment of the assets. This is especially true if it appears likely that the probate estate’s assets will be insufficient to satisfy all the creditors’ claims, leaving the beneficiaries with nothing to inherit.
  • Estate Complexity: Estates can be complicated. Assets may be spread across multiple accounts, different investment types, or even located abroad, making it difficult for the executor or administrator to identify everything.
  • Executor Inexperience: If the executor or administrator lacks financial expertise or familiarity with their legal obligations, they may inadvertently overlook assets, particularly in complex estates.

In short, creditors shouldn't rely solely on the probate process to uncover all assets. Here is a list of methods creditors can use to find a debtor's assets independently:

  • Public Records: Creditors can search public records for property owned by the debtor, including real estate deeds, vehicle titles, and Uniform Commercial Code (UCC) filings, which can uncover real estate holdings, vehicles, and business interests that may not have been disclosed during probate.
  • Private Investigators: Creditors can hire private investigators who specialize in locating hidden assets, have experience uncovering assets across different jurisdictions and asset classes, and can employ advanced techniques to track down complex financial holdings.
  • Insurance Policies: Life insurance policies and other insurance documents can lead to the discovery of assets or financial interests not listed in the estate. These policies might have cash values or be tied to investments that are considered part of the debtor's assets.
  • Legal and Financial Advisors: Consulting with the debtor’s legal and financial advisors or reviewing contracts and agreements can provide leads on trusts, estate plans, and other legal instruments that might control or hold assets outside the immediate purview of the probate estate.

Note that under many circumstances, creditors are legally entitled to use formal discovery tools like interrogatories, subpoenas, and depositions to obtain information from a decedent's attorneys, accountants, and financial institutions.

As you can see, recovering debts from a decedent’s estate can be an exceedingly difficult process. Through AAL's directory, you can find numerous attorneys with years of experience in probate law who can guide you through every step of the process, advocate for your interests during the probate proceedings, and represent you in court if necessary, ensuring you have the best chance of recovering the maximum amount you're due.

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