Probate Made Easy
PROBATE AND CREDITORS: WILL YOUR ESTATE HAVE TO PAY THEM?
Very few people are completely debt-free. When a person passes away in California and they have no trust, the case goes to probate. Part of the probate process is dedicated to notifying and paying off the creditors. But do you have to pay all the creditors? Can some of the debts be wiped out? Is there a time limit on how long the creditors can keep knocking on your door, so to speak?
Keep reading to find out exactly how paying off debt works in probate and what can be done to minimize the estate’s liabilities!
The first few months of the probate process are dedicated to establishing who is in charge and, if the decedent had any real estate, deciding whether to sell it. In many cases, heirs choose to sell the property to satisfy the debts of the estate and to share the remaining proceeds amongst themselves.
The next four months of the probate process is about notifying all known creditors and government entities of the decedent’s passing, as well as paying the decedent’s debts. The personal representative provides the attorney with the information of any known creditors of the decedent, including credit card statements, medical bills, tax liabilities, and other bills.
Certain government agencies must be notified by law
The probate attorney is required to give notice of the probate to all known creditors. This is merely a notice. Estate is not obligated to just start sending checks out.
If the creditors want to get paid, they must file a claim against the estate with the court. If money is owed to any California public entity, they must file their claims with the court as well (See Probate Code §9200). When certain state agencies have claims against the estate, the Probate Codes provide that their claims are not barred until the agencies are notified of the administration of the estate. Attorneys are required by law to give notice to these state agencies:
- California Franchise Tax Board
- California Department of Health Care Services
- California Victim Compensation and Government Claims Board
- Employment Development Department
- State Board of Equalization
These agencies must file a claim within four months from the date the attorney mails the notice unless additional time is provided under Probate Code §9201.
What about credit card debt?
When it comes to unsecured creditors (such as credit card companies), it is important to keep in mind Code of Civil Procedure Section 366.2. It provides a one-year statute of limitation for creditors to attempt to collect a decedent’s debt.
The statute applies to all unsecured creditors and states that if one year has passed since the date of death, the estate is not liable to pay the debt. Since this code sets a one-year statute of limitation (1-year drop-dead provision), any unsecured creditors must file their claims within one year from the decedent’s date of death.
An experienced probate attorney sends out the Notice to all creditors immediately upon the issues of the Letters to start the clock ticking. Creditor’s claims must be filed within four months following the issuance of letters, or 60 days after the notice was mailed or personally delivered to the creditor, whichever is later (Probate Code §9100(a)).
Even if a credit card company files a claim, an experienced probate attorney will find a way to reject it. In the end, the credit company will have to decide whether they want to fight the rejection. In most cases, they will find it impractical to hire a lawyer with an hourly rate of hundreds of dollars to fight a claim of several thousand dollars. In the end, heirs in California have a good chance that they will not have to pay the credit card debt of their mom or dad.
When will the heirs get their money?
Once the four months have expired, then the probate attorney can file the Final Petition with the court to close out the probate case. This is important because neither the probate attorney nor the heirs can receive any money until Final Accounting is approved. The court does not allow the Final Accounting to be filed unless the four-month creditor claim period has passed.
Once the judge signs the Order for Final Distribution, the estate can proceed with distribution to the heirs. Each beneficiary is required to sign a Receipt on Final Distribution which is required to itemize what each person is receiving from the estate.
These receipts are then filed with the court along with the necessary paperwork to close out the estate. At this point, the probate is done.
Certified Probate & Trust Specialist
As a Certified Probate & Trust Specialist you can rest assured that as a Real estate professional, I have the understanding of the Probate transaction and can represent sellers or buyers in probate transactions, as well as investors looking to purchase probate properties.