Creditors of a decedent who wish to pursue a claim against the decedent’s estate for an unsecured debt must follow certain important procedures in a timely manner. If these procedures either are not done properly or are not done timely then a creditor may lose their opportunity to pursue their claim. Secured creditors can enforce their lien rights without a creditor’s claim.
Generally, in California creditors of a decedent’s estate have up to one year (365 days) from the decedent’s death to file a timely creditor claim. The claim must be filed inside an open probate court proceeding. If someone else has already petitioned to open probate, or if a probate is ongoing, creditors can file a creditor’s claim in the open court proceeding. Otherwise, a creditor needs to file a petition for probate – and so open a probate matter — and file a timely creditor’s claim; the creditor’s claim can be filed at the same time as filing the petition for probate.
Also, in the case of small estates, i.e., a total gross value under $150,000, a creditor may consider opening a probate matter within 40 days of the decedent’s death. This prevents the decedent’s heirs or beneficiaries under a will transferring assets without probate. Otherwise, small estates are transferred using affidavits and small estate petitions for items of real property over $50,000.
Once filed, the creditor’s claim must then be served upon the court appointed personal representative administering the probate estate. Service must occur within 30 days of filing the claim in an existing probate court proceeding. If a personal representative has not yet been appointed, i.e., a pending probate petition, within four months after letters of administration or testamentary are issued to the personal representative.
Filing a timely creditor claim within 365 days of a decedent’s death tolls (stops) the statute of limitations that would otherwise bar (prevent) late filed creditor claims. Once tolled, the creditor’s claim remains good until the personal representative allows, rejects or partially allows and partially rejects the creditor’s claim.
A personal representative is supposed to affirmatively accept, reject or partially accept and partially reject creditor claims in writing within 30 days of receiving the creditor claim. The personal representative does so by filing an “Allowance or Rejection of Creditor’s Claim” (with the creditor’s claim attached) with the court in the probate matter, and serving a copy on the creditor and the creditor’s attorney. Also, if a personal representative does not process the creditor’s claim within 30 days, the creditor’s claim is deemed rejected.
Once a creditor claim is rejected, or is partially rejected, the creditor has at least an additional ninety days from time of rejection to commence a civil lawsuit against the personal representative to seek a judgment approving the rejected portion of the creditor’s claim.
On October 7, 2019, in Re Estate of Holdaway, the California’s Court of Appeals for the Fourth Appellate District decided whether a creditor’s claim filed with the creditor’s own petition to be appointed as the personal representative of the decedent’s estate became a rejected creditor’s claim because the creditor’s own petition was rejected when the petition by the decedent’s son to be appointed as the personal representative of the estate was granted.
The Court of Appeals in Estate of Holdaway ruled that creditor’s claim was timely filed with the court and that it was not rejected by reason of the court’s denial of the creditor’s own probate petition. The Court reasoned that the creditor’s claim was not rejected because a creditor’s claim is either accepted or rejected by the personal representative.
The foregoing discussion shows how technical is the law confronting a creditor who wishes to pursue a claim against a decedent’s estate. Anyone confronting the issues discussed above would want to consult a qualified attorney before making any decisions.