If a loved one of yours has recently passed away, that person might very well have died in debt, as many Americans do. When this happens, the creditors of the deceased are entitled to collect outstanding debts from the estate.
Dealing with the claims of creditors and making proper payment to each of them are the responsibilities of the estate’s personal representative. If no personal representative has been named in the will (or if there is no will), the probate court will appoint someone. This representative will administer the estate, which means to distribute the loved one’s assets as the will directs or, if there is no will, according to state law.
The Uniform Probate Code
South Dakota has adopted the Uniform Probate Code (UPC) to:
- Simplify the process of probating a will.
- Learn and follow the wishes of the deceased.
- Set up quick, efficient systems to administer the estate.
- Protect the rights of heirs and creditors.
- Be sure that all debts and taxes owed by the estate are paid.
- Be sure any money owed to the estate is paid.
According to the UPC, creditors have the right to collect debts from the estate before assets are distributed to the heirs. The conflicting interests between the heirs, who expect to inherit money or property from the estate, and the estate’s creditors, who want outstanding bills paid, can sometimes lead to legal disputes that require the skills of an experienced attorney.
Responsibilities of the Estate’s Representative
The personal representative of the estate must:
- Identify and notify creditors of the administration of the estate.
- Give public notice, generally in a newspaper, of the administration of the estate in case there are creditors unknown to the representative.
Creditors’ Rights and Responsibilities
Before the will is probated, a creditor may:
- File a claim against the estate.
- File a Demand for Notice in the county where the deceased died.
Once probate has begun, a creditor usually has four months to:
- Assert a claim by sending a written statement to the estate’s representative.
- File a claim with the probate court.
Creditors who were known and identified by the personal representative but were not given notice of probate may have up to a year from the date of death to file claims.
Payments from the estate must be made in a certain order. If there is not enough money to pay all debts, those at the bottom of the list might be disallowed:
- Costs of administering the estate.
- Funeral expenses.
- Federal taxes and debts.
- Medical expenses related to the final illness of the deceased if any.
- Medical expenses of the deceased in the last year of life.
- State taxes.
- All other claims.
If there is not enough money in the estate to pay all claimants, those within the same group must be treated equally. Some may receive partial payment or no payment if they are disallowed.
Common Payment Disputes
The personal representative must mail a notice to each disallowed claimant, who may then dispute the disallowance. Examples of common disputes are:
- A petition by a personal representative asking the court to disallow or allow a claim.
- A creditor petitioning the court to allow a claim after the expiration of the time limits.
- A creditor disputing partial or whole disallowance of a claim.
- A creditor whose claim is disallowed contesting allowance of other creditors’ claims.
- A creditor disputing the priority of payment.
- Statute of limitations issues.
- An action seeking to hold a personal representative liable for handling a claim improperly.
Any such dispute might have to be settled in a separate probate court case. If it is, both the estate and the creditor should have legal representation.
Are You the Personal Representative of an Estate Facing Creditor Disputes?
Only an experienced probate lawyer can help you to deal with the complexities of creditor disputes in probate court. Contact us online, start a chat, or call us at 601-306-4100 to schedule a free consultation.