Estate and Probate Attorneys Answer, “What Rights Do Creditors Have Against an Estate?”
When a decedent leaves behind unpaid debts, creditors have certain rights when it comes to reclaiming those debts. However, a creditor’s ability to enforce their rights could be significantly limited if they fail to enter their claim within the appropriate time frame. A creditor who enters a claim too late may lose the opportunity to recover the debt they are owed by the decedent’s estate.
Below, our estate and probate attorneys briefly discuss some of the rights that creditors have against the estate of a decedent, and how they may obtain repayment for the debts they are owed.
Creditors have a right to be notified of a debtor’s death. The personal representative or executor of the decedent’s estate must notify the decedent’s creditors through a Notice to Creditors, which is often posted in a newspaper or other public forum. Each state has varying time frames of how far ahead this notice must be provided. While creditors are not typically able to make a successful late claim, a court may allow them to enter one if the executor failed to issue a Notice to Creditors within the allotted time.
Right to File a Claim
Creditors also have a right to file a creditor’s claim with the probate court handling the debtor’s estate. It is imperative for creditors to file a creditor’s claim at the earliest opportunity after the decedent’s death, as the longer they wait, the greater the chance that the decedent’s assets will be distributed to their beneficiaries and the probate court closes the case.
Creditrs can employ a legal defense known as an “estoppel” to prevent the executor of the estate or their attorney from going back on their word if the executor or attorney previously agreed to repay a debt to the creditor. In some cases, creditors will opt not to make a claim because they were led to believe that the debt would be repaid. If the debt is not then repaid, the creditor could use this legal maneuver to prevent the executor from arguing that it is too late to make a claim.
If an estate has insufficient funds to pay creditors after paying state and federal taxes, administration expenses, and other debts that must be paid immediately, creditors have a right to pursue repayment through other means. This might include non-probated assets such as bank accounts, Insurance, and distributions from trust funds, if any other assets are available.
Right to Pursue Legal Action Against Executors
If an estate’s executor mismanaged an estate’s assets and willfully failed to repay debts the estate owed as a result, then the creditor generally has a right to hold the executor legally liable.
If you would like to learn more about the repayment of creditors after the loss of a loved one, or if you need assistance with the estate or trust administration process, please contact our Williamsburg, Peninsula, and Southside Virginia estate attorneys at (757) 645-3176 or (866) 603-5976 to schedule an appointment.