How are debts and other claims against a decedent’s estate handled in California? Often a properly completed creditor’s claim form needs to be timely filed in a Probate Court proceeding (Note: An equivalent court proceeding is sometimes opened by the trustee of the decedent’s trust estate provided no probate exists, but this is uncommon.) Other claims do not require filing a creditor claim. Let us discuss each.
Foreclosure actions by a secured creditor (e.g., a bank), claims against an Insurance Policy, and claiming a property ownership in property either possessed by or titled to the decedent’s estate do not require the filing of creditor claims.
A secured creditor or a judgment creditor with a lien against real property can simply foreclosure on the security interest and recover from the sale proceeds. A secured creditor may still have an unsatisfied portion and may file a creditor’s claim form for that amount.
A person with an insurance claim can proceed against the insurance company to the extent of the policy limits. Again, any claim above the policy limits would require filing a creditor’s claim form in a Probate or Trust Administration proceeding.
A person claiming ownership in real or personal property possessed by or titled to the decedent’s estate can petition to recover the property without filing a creditor’s claim form.
Anyone seeking payment from the decedent’s estate must timely file a creditor’s claim form in the probate court proceedings. Claims must be filed within one year of a decedent’s death. If no probate, or equivalent trust administration court proceeding has been opened, a creditor may open a probate proceedings in order to file their own creditor’s claim.
When a decedent dies owing large debts the surviving beneficiaries of the estate may delay administration of the decedent’s estate until past the 1 year anniversary of the decedent’s death to time bar creditor claims. Generally speaking, most creditor claims become unenforceable unless filed within the first year in the decedent’s probate proceedings.
During the first four months of commencing Probate, the decedent’s personal representative notifies all reasonably ascertainable creditors and provides them each with a creditor’s claim form. A creditor then has until the end of the four months, but at least sixty days, to file a timely claim with the court and with the personal representative.
Untimely claims past the four months creditor claim period are discretionary with the court and depend on facts and circumstances. On occasion, when equity (fairness) demands, a claim may even be allowed after the one year mark.
Once filed, the personal representative has ninety days to either accept, deny or partially accept and partially deny the claim. A creditor with a rejected claim has ninety days from rejection to proceed with a lawsuit against the personal representative.
Usually a personal representative waits until the four month period is over, and perhaps later if there further creditor claims are expected, to pay the accepted claims.
If the decedent’s estate does not have sufficient assets to fully pay all accepted creditor claims the personal representative seeks court guidance on how much not to pay each creditor based on a California’s priority of debts. Expenses of administration – including the court costs and the fees owed to the personal representative and her attorney – are paid before creditor claims.
Secured debts, however, take priority even over expenses of administration to the extent of the security interest. For example, a bank mortgage must be fully satisfied before any remaining proceeds from the sale of a residence are available to the decedent’s estate to pay expenses of administration and to pay creditor claims.
Given the complexity and the grey areas in this broad area of law, persons seeking to recover against a decedent’s estate should consult a qualified attorney in order to proceed properly.