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Debts and Creditors

How is the Personal Representative responsible to creditors?

The Personal Representative gathers property of the person who died and manages it for the benefit of all interested persons, including creditors. You must treat creditors as fairly as those persons who will inherit property from the estate. If there is not enough money in the estate, you must pay the claims of creditors before any property can be transferred to heirs or devisees. In addition, you might need to pay claims of other persons before paying the claims of creditors, such as Family Allowance, Homestead Allowance or Exempt Property.

You must notify creditors that you have opened a probate and tell them how long they have to file claims. You do this by publishing a Notice to Creditors in the newspaper and by sending the Notice to certain creditors. You must review all of the claims filed by creditors and make a decision about whether they are valid. Some creditors do not need to file a claim to be paid from the estate. If there is not enough money in the estate to pay all of the creditor claims, you must pay them in a very specific order.

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How do I find creditors?

You must take reasonable steps to find all known creditors of the person who died. Below are some steps that you can take:

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How long does a creditor have to make a claim against the estate?

A creditor generally must bring a claim against the estate within these time periods:

Type of Creditor Claim
Time Period to File Claim

Claims arising before or at the person's death against the person who died for general things like credit card debt or medical expenses.

Claims made by a secured creditor for the amount left on a debt, such as the amount owed on a car loan.

Within four months from the first date of publication of the Notice to Creditors.

Actions by a secured creditor to enforce a mortgage or lien against estate property, such as the right to take back a vehicle.

According to the terms of the contract between the creditor and the person who died. The secured creditor does not need to file a claim against the estate.

Claims based on a contract with the Personal Representative for things such as appraisal services or cleaning services.

Within four months after the Personal Representative failed to pay for the service.

Claims arising after the person died, for general things such as a tree from estate property damaging a claimant's property.

Within four months after the claim arises.

Claims by creditors about which you knew or could have reasonably found out if you do not send them the Notice to Creditors or if you did not publish a Notice to Creditors.

No longer than three years from the date of the person's death.

There may be other time periods that apply in special situations. You should talk to a probate lawyer if you have any questions.

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What is a Notice to Creditors?

A Notice to Creditors tells creditors that you have opened a probate and that they have four months from the first date of publication to file claims against the estate or the estate will not have to pay the claims. The Notice should include:

This is part of a sample Notice:

Notice is hereby given that _____________ has been appointed Personal Representative of the above-named estate. All persons having claims against the decedent are required to present their claims within four months after the date of the first publication of this notice or said claims will be forever barred.

You must publish the Notice once a week for three weeks in a row in a newspaper commonly read in the judicial district in which you filed the probate. It is a good idea to publish the Notice as soon as possible because you cannot be closed until at least six months after the first date of publication. You may pay for the publication from estate funds. Keep the receipt for later accounting.

You do not need to publish this Notice if the estate qualifies as a small estate.

After you publish the Notice, the newspaper will send you a document called an Affidavit of Publication that lists the dates on which the Notice appeared in the newspaper. File this document with the court as proof of publication.

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Do I have to send the Notice to Creditors to creditors if I publish it?

You must mail or deliver the Notice to Creditors to creditors who have claims against the person who died or the estate about which you know or could reasonably find out. If you do not do this, these creditors will have three years from the date of the person's death to bring their claims against the estate. If one of these creditors files a claim after you have already paid the other creditors and transferred estate property and you did not mail or deliver notice to that creditor, you might have to pay the claim from your own personal funds if you could have reasonably found out about that creditor. The persons who inherited estate property might also have to return the property so that the creditor can be paid. To avoid this, you should make absolutely sure that you send the Notice to anyone who might have a claim.

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How does a creditor make a creditor claim against the estate?

The creditor should prepare a document, usually called a "Claim Against Estate," that describes the claim. It must include:

You can file:

The creditor should submit its claim in one of the following ways:

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What should I do when the creditor claim period ends?

You should keep a list of claimants that file claims with you or the court. You can decide to pay or reject (disallow) claims as they come in or you can wait until the end of the four-month claim period that runs from the first date of publication of the Notice to Creditors. At the end of the four months, you will have an additional 60 days to make a decision on each claim. If you do nothing, the claim will be allowed at the end of the 60 days. If you decide a claim is not valid you must file a Notice of Disallowance within the 60 days.

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How do I reject a claim?

If you decide to reject a claim because you think it is not valid, you must send the claimant a Notice of Disallowance and file the Notice with the court. You can send and file a Notice of Disallowance any time after the claim is filed but no later than 60 days after the four-month claim period ends.

The Notice must say the following:

If you do not say all of these things very clearly, the Notice of Disallowance will not be effective.

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What happens after I send the Notice of Disallowance?

The claimant will have 60 days from the date on which you mailed the Notice to either (1) petition the court to allow the claim or (2) file a court proceeding against you. If the claimant does not do either of these things, you do not have to pay the claim.

If the claimant does file a petition or proceeding, the court will schedule a hearing on the claim. You must tell the court why you disallowed the claim. You can also file documents or have persons testify to support the disallowance. The claimant can tell the court why the claim should be allowed and file documents or have persons testify to support the claim.

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Does the estate have to pay interest on a claim?

Yes. The table below shows when interest must be paid on a claim:

Type of Claim
Rate of Interest

Claims based on a contract.

At the rate in the contract.

Judgment against the Personal Representative.

At the rate in the judgment.

All other claims.

At the legal rate beginning 60 days after the four-month creditor claim period ends.

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What if the estate does not have enough money to pay all of the claims?

The estate is considered to be "insolvent" if it does not have enough money to pay all valid creditor claims. In that case, it is very important to pay creditors in the right order. If you pay a creditor out of order and there is not enough money to pay creditors with a higher priority, you may have to reimburse the estate from your own personal funds.

If you have any doubts about whether the estate will have enough money to pay all claims, you should wait until after the four-month claim period ends to pay claims. You may need to wait even longer if you disallow a claim so that you know which claims will be allowed. It is a good idea not to transfer any property to the persons who are supposed to inherit it until all creditor claims are paid.

Creditors will often ask you to pay their claims before the four-month claim period ends. You should simply tell creditors that they must wait until the estate has a chance to look at all of claims that have been filed. If you think that the estate might be insolvent or have questions about how to pay creditor claims, you should talk to a probate lawyer.

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Can the Personal Representative collect property passing outside of probate to pay creditor claims?

Yes. If the estate does not have enough property to pay all creditor claims, the Personal Representative has the right to collect certain nonprobate property if all of the following conditions are met:

The Personal Representative can recover this type of property from anyone who inherited this type of property. There is no specific order of priority. The person who inherited the property will have to give back the share that belonged to the person who died, up to the amount needed to pay the creditor claims. Any remaining funds belong to the person who inherited the funds and not to the estate. A person who is asked to give up property can bring others who received similar property into the same court action. Those persons will also have to give up their shares of funds to pay creditor claims.

If you need to collect property passing outside of probate to pay claims, you should talk to a probate lawyer.

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Which claims should I pay first if there is not enough money in the estate?

Creditor claims are sorted into classes. Each class has a different right to payment. The Personal Representative must pay all claims in the class with the highest priority first. If there are enough funds after those claims are paid in full, the Personal Representative can move to the next highest class and pay those claims. If there are not enough funds to pay all creditors in full in a certain class, the Personal Representative must apply the same percentage to all claims and pay them partially. After that, no other classes with a lower priority receive any payment.

The chart below lists classes of creditor claims, in order from the highest to the lowest right to be paid:

Class of Claim (in order of priority)
Description

Secured claim

The highest priority applies only to the secured creditor's right to collect the property (security) and not to a claim for the amount of the debt.

Probate expenses

Examples include court fees, publication fees, postage, airfare, appraisals, lawyer fees, accountant fees and Personal Representative fees.

Funeral expenses

Examples include reasonable burial costs, obituary fees and costs of the service.

Debts and taxes with certain priority under federal law.  Past due child support.

Examples include unpaid federal income, gift or estate taxes.

Medical and hospital expenses of last illness.

Examples include doctor bills, nursing home and caregiver services and ambulance costs.  These must be reasonable and necessary for the last illness of the person who died. 

Debts and taxes with certain priority under state law

Examples include unpaid state property, business or income taxes.

All other claims

Examples include credit card debt, medical bills before the last illness, unpaid goods or services, judgments and secured loans based on the entire debt.

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Can I pay claims out of order?

Yes, if you are sure that there will be enough money in the estate to pay all of the claims. For example, it is common to pay probate expenses as soon as they are due. You can also pay a valid claim even if the creditor does not file a claim.

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What if a creditor owes the estate money?

You can deduct the amount that the creditor owes to the estate from the claim and pay the lower amount. For example, if a neighbor files a claim for the cost of tree removal that the neighbor did for the person who died but the person who died sold a snowmachine to the neighbor and was not paid for it, you can deduct the sales price of the snowmachine from the amount of the claim for tree removal services.

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Does a secured creditor have to file a claim against the estate?

No, if the secured creditor is enforcing its right to take back the property. The agreement between the secured creditor and the person who died controls the creditor's rights. For example, if the secured creditor has the right to repossess a car, the creditor can take back the car if the person who died still owes money on the loan.

The secured creditor has to file a claim against the estate within four months from the first date of publication of the Notice to Creditors if it wants to make a claim for the entire amount owed under the loan. For example, if the value of the property (such as a car) is not worth as much as the amount still owed on the loan, the creditor might want to claim the amount still owed on the loan. To file a claim for the full amount, the secured creditor must follow other special rules. You should talk to a probate lawyer if you are a secured creditor filing a claim for the amount owed on a debt or if you are a Personal Representative who has received a claim from a secured creditor for the amount owed on a debt.

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Can I pay off the lien on real property or personal property?

Yes, if it is in the best interests of the estate. For example, you can pay off a mortgage on real property or the loan on a car. However, unless the Will says otherwise, this does not increase the share of the person who inherits the property. For more information, see Distribution of Estate Assets.

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As a creditor, what can I do to make sure that the estate pays my claim?

As soon as you find out that a person has died:

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Where can I learn more about the different tasks for Personal Representatives?

You can learn more about the:

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Rev. 21 June 2014
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