Businesses owed money by an individual typically expect to receive full repayment. Sometimes, the collection process can become quite lengthy. Individuals may not currently have the resources or income to pay the debt in full and may only make minimal payments toward the outstanding balance that they owe.
Sometimes, debtors and borrowers die before they fulfill their financial obligations to others. Businesses then have the option of pursuing a claim in probate court. They largely rely on the personal representative of the estate to provide them with timely notice.
What happens when a personal representative fails to communicate with known creditors?
Representatives may become personally liable
California’s probate laws provide very clear rules for notifying creditors about someone’s death and upcoming probate proceedings. Generally speaking, the personal representative of an estate must take timely action to notify creditors of the death and the upcoming probate proceedings. They have four months from their appointment to the role or 30 days after learning about the creditor to act.
However, personal representatives do not always fulfill that obligation. Either due to a lack of organization or an attempt to minimize what resources the estate distributes to people other than named beneficiaries, they may fail to advise a creditor of someone’s death and the need to file a probate claim. In some cases, creditors may only discover this oversight after the opportunity to seek compensation from the estate has passed, which is generally a year after someone’s date of death.
At that point, creditors may need to look into alternate options. It is sometimes possible to hold the personal representative accountable for their failure to comply with state statutes. Creditors could initiate a lawsuit against the personal representative seeking repayment. Typically, the personal representative is not automatically liable for the full value of the debt.
Instead, what matters is the value of the resources that they may have inappropriately distributed instead of using them to repay creditors. They might ultimately be responsible for the full fair market value of those assets even if they did not retain those assets themselves but instead distributed them to beneficiaries.
Probate claims can be difficult to manage on their own. When a personal representative fails to follow the right procedure either intentionally or due to negligence, a creditor may face a complex court case. Learning more about creditor rights during estate administration can help those owed money by someone who recently died to minimize losses related to improper estate administration.