How do Creditors claims work in a California Probate?
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Proper Handling of Creditors Claims against the estate in California
1. Getting the personal representative appointed
Proper handling of creditors’ claims is critical. The estate can not close until all the decedent’s debts are paid or planned to be paid. (Prob. Code, § 11640, subd. (a).) Failure to timely attend to the creditors’ claim procedure may also delay or limit a requested preliminary distribution, which requires a showing that the distribution will not cause a loss to creditors or injury to the estate or any interested person. (Prob. Code, § 11621.)
Liability issues aside, the creditor’s claim procedure is easy and compliance is straightforward. (Prob. Code, §§ 9000–9399) Here are some quick tips on navigating the procedure creditors’ claims procedure.
The very first thing is to appoint a personal representative. There may be a long delay before the court hearing on the petition for probate. If the estate is financially complex or another urgent need exists, consider requesting a special administrator to serve before the hearing. (See Prob. Code, §§ 8540-8547.)
Please note a Reverse mortgages require urgency. Prior to the lender starting a foreclosure action no creditors claim is required. (Prob. Code, § 9391.) Reverse mortgages become due and payable once the borrower dies, the time period to avoid a foreclosure is usually very short, around 30 days, As it is a lien on property.
Reverse mortgages
no creditors claim is required prior to the lender starting a foreclosure action. (Prob. Code, § 9391.) Reverse mortgages become due and payable once the borrower dies, the time period to avoid a foreclosure is usually very short, around 30 days, As it is a lien on property.
Reverse mortgage companies will generally work with the personal representative, but can begin to aggressively pursue a foreclosure if a probate is not promptly initiated and a personal representative is not appointed
2. Gather information about the decedent's debts to anticipate creditors claims
To gather information about the decedent’s debts, the appointed representative should review the decedent’s files, online accounts, and mail. The representative should forward the decedent’s mail to themselves, and make arrangements to collect the decedent’s mail pending the forwarding request becoming active. A title report on the decedent’s parcels of real property may also reveal creditors.
If the representative cannot access to the decedent’s online accounts, the representative should check the decedent’s web browser’s bookmarks or web history. These may list financial sites, credit card company logins, or may indicate outstanding accounts. Bank statements may also reveal accounts set to “auto-pay.”
The personal representative should request the decedent’s credit report. You can do so is when notifying the credit reporting bureaus of the decedent’s death.
Make sure you Get your notices out early.
Certain entities, such as Medi-Cal (see Prob. Code, § 9200-9205), who are creditors are not required to file a claim before proceeding with litigation, these include:
- Claims covered by insurance, if the claimant is not seeking to establish liability beyond the coverage of the insurance policy or policies. (Prob. Code, § 9390.)
- Enforcement of liens on the decedent’s property. (Prob. Code, § 9391.)
- Certain claims based on the liability of a distributee. (Prob. Code, § 9392.)
Each known or reasonably ascertainable creditor must receive a Notice of Administration to Creditors. This notice limits the time where creditor may file a claim. If a creditor fails to timely file a claim, the creditor is barred from initiating a lawsuit on the claim.
Creditors must file their claim before the later of:
- Four months after the date letters are first issued (Prob. Code, § 9100, subd. (a)); or
- 60 days after the notice of administration is mailed or personally delivered to the creditor (Prob. Code, § 9100, subd. (b)).
Code of Civil Procedure section 366.2 creates a one-year statute of limitations on most claims against a decedent and this limitations period is not extended or tolled by the sixty day period for a creditor to respond to a Notice of Administration to Creditors. (Prob. Code, § 9100.) However, some claims are excluded from this limitations period, such as claims to enforce a lien. (Prob. Code, § 9391.)
What are “Known or reasonably ascertainable creditors?
Probate Code section 9050 requires that “the personal representative shall give notice . . . to the known or reasonably ascertainable creditors of the decedent.” The personal representative is deemed to know of the creditor, If a creditor demands payment from the decedent’s estate, (Id.)
It is better to send out all conceivable notices than miss a potential creditor. Representatives are under a duty to make a reasonably diligent effort to identify potential creditors (Prob. Code, § 9053). Failure to execute on this may allow a creditor to file a late claim in the estate. (See Prob. Code, § 9103 for requirements.)
In addition to the “usual suspects” (i.e., credit card companies and medical bills), other potential creditors include:
- Friends, family members, and heirs who paid the decedent’s bills, funeral expenses, or other costs necessitated by the death and the administration of the decedent’s estate.
- The decedent’s caregivers or other household employees.
- Judgment creditors (personal injury matters and others).
For parties suing, or threatening to sue, the decedent. (Filing of a creditor’s claim is a prerequisite to initiating or continuing litigation against a decedent in many cases. See Prob. Code, §§ 9300–9392 for details.)
Important Deadlines for Creditors Claims.
include the deadlines to:
- The creditors to file a claim; Mus be done within four months of letters being issued
- The personal representative’s response to a filed creditor’s claim; must be within 30 days of the claims filing
- The creditors to file suit on a rejected claim; and (must be within 90 days after the claim is rejected)
- Expiration of the one-year limitations period (Code Civ. Proc., § 366.2.)
Act on filed creditors claims quickly
Once a claim is filed with the court and served on the personal representative, the representative must decide whether to accept or reject the claim. (See, Prob. Code, § 9250-9256.) The representative may reject and accept a claim in part. (Prob. Code, § 9250, subd. (a).) Rejections and approvals are given using a judicial council form – See “the Allowance or Rejection of Creditor’s Claim.”
Although a creditor may deem a claim rejected 30 days after a claim is filed (Prob. Code, § 9256), it is normally better to provide a formal rejection or partial allowance as soon as possible to start the 90-day period in which the creditor may commence litigation. Only a formal rejection, filed with the court and served on the creditor, will stop the tolling of the one-year statute of limitations that occurs upon the creditor filing the claim. (Prob. Code, § 9352.)
Circumstances where court approval for the creditors claim is required.
Although a personal representative authorized to act under the Independent Administration of Estates Act (IAEA) may allow or reject claims without court approval or a Notice of Proposed Action (NOPA) (Prob. Code, §§ 10552, 10500), court approval may be required, and should be sought under the following situations:
- Where he personal representative lacks authority under the IAEA to approve or reject claims without court approval (see Prob. Code, § 9250).
- Where the personal representative is the creditor. (Prob. Code, § 9252.)
- Where there are circumstances indicating the possibility of a conflict of interest or self-dealing (e., the claim of a construction company owned by the spouse of the personal representative.)
Examine creditors’ claims carefully.
Although the personal representative is obligated to pay claims that are justly due, the personal representative should always scrutinize claims carefully for defects. Items to check include:
- Is the claim timely filed? including the one-year limitations period on actions against a decedent? (Neither the court or personal representative may allow or approve a claim barred by Code Civ. Proc., § 366.2; Prob. Code, § 9103, subd. (f).)
- Are facts supporting the claim stated in the creditor’s claim?
- Where applicable, did the claimant include vouchers, documentary proof, or the written agreement on which the claim is made? (If not, the representative may demand them. Prob. Code, §§ 9151–9152.)
- Is the claim filed with the court?
- Did the claimant sign the creditor’s claim form?
Personal representative should be prepared to waive formal defects in a creditors Claim.
The personal representative is allowed to waive formal defects in a claim, and may elect to treat a timely demand for payment as a properly filed claim. (Prob. Code, § 9154.) This is particularly useful for debts that are clearly not subject to dispute, such as a credit card or utility bill.
Of course, this blog is not a deep or complete dive into creditor’s claim procedures against a decedent’s probate estate (and optionally used in trust administrations with slightly different timelines, see Prob. Code, §§ 19000–19403.)