Normally, creditors have two years from the decedent’s date of death to file a claim against the estate. However, that length of time and the uncertainty it causes can be reduced from two years to just four months, if the statutory provisions for creditor claims are followed. So, the statutory "carrot" is that creditor claims made after this four-month period can be barred. These provisions are available whether or not the decedent had a Will.
Generally speaking, there are two types of creditors: secured and unsecured. Secured creditors are those who have a valid security interest in an asset which can be repossessed and sold to repay the debt upon default. A typical example of a security interest is a Deed of Trust that provides for the sale of the real estate in order to pay the loan should there be a default. Each secured creditor of a decedent is dealt with according to the terms of the security interest.
Unsecured creditors do not have a formal security interest and would include creditors such as utility companies, health care providers, credit card companies and merchants who have extended credit. Giving notice is the key to dealing with creditor. This is done in two ways: published notice and actual notice. There are four primary steps in this
- Publish a notice in a local newspaper once a week for three consecutive weeks;
- Conduct a search of the decedent’s records;
- Send or deliver actual notices to all creditors found in the search of the decedent’s records; and
- Demonstrate to the court that the published notice, search of the decedent’s records and the actual notices were done according to the statutory requirements.
Published Notice
The first step in dealing with creditor claims is to publish legal notice that the creditors have four months to submit a claim against the estate. This notice, which is first filed with the court, is published once a week for three consecutive weeks in a local newspaper. These notices typically appear in the legal notices section of the newspaper’s classified ads section.
In theory, this notice lets every creditor know of the decedent’s death and the need to file a claim against the estate within four months from the date of the first publication in the newspaper. Creditors are responsible for looking after their financial interests. This responsibility includes keeping track of those who owed them money. For example, many businesses and other creditors routinely read the obituaries and legal notices to see if any of their debtors have passed away.
Search Decedent’s Records
Within the three-month period after publishing the Probate Notice to Creditors, the personal representative should thoroughly search the decedent’s records in order to find potential creditors, known as “reasonably ascertainable” creditors. The decedent’s records would include correspondence, financial records, personal financial statements, loan documents, checkbooks, bank statements and income tax returns. Actual notice must then be either mailed or delivered to reasonably ascertainable creditors.
Actual Notice
The time limitation for reasonably ascertainable creditors is different than for unidentified creditors. Reasonably ascertainable creditors have either 30 days from the mailing or delivery of the actual notice or the four-month limitation for the published notice, whichever is later. Although actual notice can be mailed or delivered at any time, it is preferable that actual notice be sent or delivered to reasonably ascertainable creditors no later than the end of the third month of the four-month period. That way, the time limitation for reasonably ascertainable creditors ends concurrent with or before the four-month period for other creditors.
Demonstrate Compliance to Court
Finally, compliance is demonstrated to the court by the filing of sworn statements in the form of affidavits. The newspaper submits an affidavit that the published notice appeared once a week for three consecutive weeks. The personal representative or the attorney for the estate files and affidavit of mailing notices to the reasonably ascertainable creditors. Lastly, the personal representative files an affidavit setting forth the actions taken to discover the reasonably ascertainable creditors.
Optional
The statutory provisions for creditor claims are optional. However, personal representatives are well advised to take advantage of the four-month limitations and other protections that these statutes offer. These advantages usually out weigh the cost of publishing the notice in the newspaper, providing reasonable ascertainable creditors with actual notice and demonstrating compliance.
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