Paying Creditor’s Claims

One of the primary duties of the Personal Representative is to manage the estate assets, which includes paying creditors of the estate. In performing this duty, there are several important things a Personal Representative should remember.

First, most creditors should not be paid until the eight (8) month creditor period has expired. The only exception are debts that MUST be paid to preserve estate assets. Examples of debts that should be paid include mortgages on real property, property taxes and insurance premiums required to maintain policies on the assets. Other bills, such as medical bills, credit card bills and other unsecured debts should not be paid until the Personal Representative can evaluate ALL claims against the estate and prioritize their payment. This is one of the largest errors made by Personal Representatives and one that can likely get you in trouble with the heirs by paying unnecessary debts. Remember, it’s the heirs money you are spending.

Once the creditor’s period has expired, the Personal Representative has a duty to pay claims made against the estate. This only includes claims that have been properly filed with the Personal Representative and Court, not simply people who have continued to send bills and make harassing phone calls. Those who do not file claims are barred from payment and should not be paid! Claims that are filed must then be paid according to an established priority S.C. Code §62-3-805. If the estate does not have enough assets to pay all the claims in full, this priority will guide the Personal Representative in which claims to pay first.

Costs and expenses of estate administration, including attorney’s fees and reasonable funeral expenses must be paid first. Next in line are reasonable and necessary medical and hospital expenses of the decedent’s last illness and/or medical assistance paid under Medicaid to certain individuals. Then, the Personal Representative must pay debts and taxes required to be paid under federal law, then debts and taxes required to be paid under South Carolina law, and then all other claims, in that order. A large portion of these claims fall in this bottom category (such as credit card debt). Legal advice from a probate attorney is often helpful in this situation. Quite frequently, the cost of a probate lawyer is less than the number of claims they can negotiate or dissolve entirely.

If the estate does not have enough funds to pay all claims within one of these classes in full, the Personal Representative may have to pay only a portion of all those claims. In order to do this properly, all claims in the same class should be treated in the same manner. A probate lawyer can guide you through the process of disallowing claims and a future post will delve further in to that topic. Lastly, these rules do not apply to the administration of small estates (those valued at less than $10,000 at the time of this post) if they are being administered through a small estate proceeding. (Update: The value for a small estate increased to $25,000 in January, 2014)

 

Important Note: Effective January 1, 2014 there were substantial changes in South Carolina’s Probate Code. While we’ve tried to update this blog, please note the date of blog posts and send us an email or call for a consult before relying on information written prior to January 1, 2014. We appreciate your understanding.

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3 Responses to Paying Creditor’s Claims

  1. Thanks for posting this. Great info, I will pass it along.

  2. Cristobol says:

    How about the following set of facts. Say an estate is probated and it turns out that there are not enough liquid assets to pay creditor’s claims that are filed. For example, say the only estate asset is house and there is a mortgage that is equal to the value of the house, and there are no other liquid assets.

    So after receiving the claims the PR sends notices to each creditor that there are no assets to pay with, and the thirty days expires without the creditor bringing an action for payment. The estate is then closed.

    Fast forward two years. Now it is discovered that there is a bank account that was overlooked that the estate is entitled to, for example, an abandoned property company locates the asset and informs the Personal Representative. Now there would be money to pay with. But at this late time does the claim still have to be paid, since the claim was initially declined and the creditor did not take steps.

    And as another question, what would you think of an attorney who advises a family member who believes that a decedent had many debts, to delay probating the estate until after one year passes from the date of debt, so as to avoid any claims?

  3. Cristobol –

    Thanks for the comment. A creditor who does not challenge the inventory or fails to request a hearing will be time barred from later making the claim. In this scenario, I would still recommend that the estate be reopened and the inventory be amended prior to any distribution being made.

    As for your second question, it is not uncommon for an experienced attorney to make recommendations on how to reduce claims against the estate. Once concern is that IF there is a will, this can be an issue as holding a will more than 30 days after death is technically a misdemeanor in SC. Furthermore, after 45 days a creditor can also come in and open the estate on their own. So, this is sound advice when followed with practical steps to make sure the client, heirs and estate are protected while waiting during that year.

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