People often leave behind property to distribute, taxes to pay and debts to settle when they die. These unresolved issues are known collectively as the deceased's estate. Various creditors may come forward to claim repayment of debts from the estate, and the personal representative is responsible to pay those debts. But if he refuses a creditor's claim, the creditor may then file suit against the estate, meaning that he asks a court to compel repayment.
Probating the Estate
Probate is the process of settling an estate with the help of a probate court. The personal representative, also called the executor or administrator, is in charge of paying taxes and settling debts before distributing any remaining property to heirs and beneficiaries. However, the probate court has the right to supervise all of the personal representative's decisions, including the payment of any claims by creditors.
Creditors are individuals, businesses or other entities to whom a debt is owed. The personal representative must give notice of the deceased's death to his potential creditors: direct notice in the case of known creditors who can be contacted or published notice if there are possible unknown creditors. Note that the required notice may vary from state to state. Creditors of the deceased can submit a creditor's claim to either the personal representative or the probate court. However, creditors' claims are bound by a statute of limitations, meaning that if the claim isn't submitted to the estate within a certain period, the creditor loses his right to repayment. The limitations period may also vary by state and may be different for known and unknown creditors. Potential creditors should check applicable state law to make sure they submit their claim in time.
Types of Creditor
Not all creditors are alike. Contract creditors demand repayment based on a contract under which they're legally owed money, such as the bank that issued the deceased's credit card or a roofer who repaired the deceased's house before he died. Tort creditors, on the other hand, have won a judgment in court which awards them payment, such as when the deceased has hit the creditor's car. Originally, only contract claims could be satisfied after death; tort creditors who didn't collect their award during the defendant's lifetime were out of luck. Today, most states have expanded their laws to allow both contract and tort creditors to submit creditors' claims to a probate court, but tort creditors in some states may still encounter problems.
Suing the Estate
The creditor's first step is always to submit a claim to the deceased's estate, officially demanding repayment from the personal representative. However, if the estate refuses to pay, the creditor can still file suit against the estate for repayment by submitting the claim directly to the probate court. The suit will take the decision away from the personal representative and place it in the court's hands. On the rare occasion when there is no probate proceeding, the creditor may file suit in civil court for repayment from those who inherited the deceased's property, depending on the circumstances.