A creditor will typically resolve most claims through a debtor's voluntary payment or through civil judgment and post-judgment collection procedures. When a debtor dies leaving an unpaid debt, however, the creditor must file a claim against the probate estate to protect and secure payment. Once the creditor files the claim, the estate can approve and pay the debt if funds are available, or dispute the debt and schedule a hearing with the probate court.
Probate is the legal process that settles decedent's -- or the deceased's -- estate. State laws govern the probate process; however, similarities among the state laws exist. Estates over a certain value, as determined by state law, generally must go through probate. The court appoints an executor, or personal representative, to oversee the process. Probate includes inventorying the estate, payment of creditors and transferring or distributing the remaining assets to the heirs or beneficiaries.
When an estate commences probate through the courts, the executor or personal representative must notify beneficiaries, heirs and creditors that the estate is in probate. The executor or personal representative may need to provide personal notification of the probate to known creditors. For all other creditors, notice is sufficient through publication in a local newspaper immediately after filing the petition to probate with the court.
Filing a Claim
A creditor who reasonably believes that the decedent owes her money should contact the personal representative or executor in writing regarding the claim. Claims do not necessarily require filing with the court; however, if a creditor does not file a claim with the court and the estate disputes the claim, the creditor may lose the right to assert the claim. Creditors need to adhere to the time limits for filing a claim set forth by the state or their ability to file a claim expires.
Approval and Payment
If the personal representative or executor approves the claim, and adequate funds are available in the estate to pay the claim, remittance of the payment can occur at any time. If the claim is approved but funds are not available, then the creditor will have to wait until the estate is settled. If the estate does not have enough funds to pay all claims, the distribution pays debts in order of priority. Secured claims, such as a mortgage, are typically fulfilled first. State laws regarding priority of all other claims will vary.
If the personal representative or executor does not approve the claim, the creditor must notify the court. The court will set a hearing on the claim. The claimant must convince the judge at the hearing that the claim is valid. If the creditor provide adequate evidence to convince the judge, the court will order payment from the estate assets if funds are available.