What Rights Do Creditors Have?
In all states, creditors have a right to make a claim against a probate estate for money that is owed to them by the decedent. And creditors' claims have a priority over the beneficiaries' rights to distribution from the estate.
Think of it this way, the executor has to do three things in any probate:
1. Collect the estate's assets.
2. Pay the estate's debts.
3. Distribute the estate's remaining assets to the beneficiaries.
And it's just common sense that these steps must be done in order. If an executor distributes money before the debts are all paid, creditors have the right to go after these distributions to secure payments, and no beneficiary is going to be happy about that.
In all states, as well, the executor must notify all known and reasonably ascertainable creditors of the estate so that these creditors have time to make a claim. The executor does not have to make extensive and expensive searches to find these creditors, but they must notify the ones that a reasonable person would know about (for example, because they have received bills from such creditors). In some states, the executor must also publish a notice of the probate proceeding in a publication in the county where the decendent lived for a certain period of time, often 3 consecutive weeks.
Once notice has been received, or published, creditors have a certain period of time to submit a claim against the estate, usually 3-6 months, but this varies by state. If a creditor receives notice and fails to make a claim within the permitted claims period, their claim is barred (they can't ever collect on that debt). Also, states have another limit on claims against a decedent that is simply a time-barred claim (often 1-2 years). If no claim is made within that statutory time frame, it is also barred.
Executors who fail to provide notice to known or ascertainable creditors may be personally liable to the estate for the debt, so it's an important part of the executor's job to pay all of the estate's debts and to provide proper notice to the estate's creditors.
You may also be interested in:
Small estates don't have to go through probate to be distributed. Find out what New Jersey's limit is for this small estates procedure.
Each state has its own rules about probate. Find out how they do it in New Jersey.
Here is an overview of how this site works and what articles you'll find most useful. It can be confusing to sort out the process, the taxes, and the issues that arise after someone's death. This site will help.