When someone who owes you money dies, you may worry about getting paid. You may also wonder whether interest keeps adding up. In California, death does not automatically cancel a debt or stop interest from accruing. However, the amount you can recover depends on the type of debt, its interest rate and the assets available in the estate.
How does California calculate interest on estate debts?
For estate debts without separate interest rules, interest generally begins when the probate court orders payment and continues at the legal judgment rate until the estate pays.
Here’s how the rules apply to two common types of debt:
- Written contracts: Interest generally follows your contract’s terms and rate, as allowed by law. Examples include credit cards and personal loans.
- Court judgments: Interest generally grows at 10% per year on the unpaid debt. Some court judgments have a lower 5% rate. This applies to qualifying judgments against individuals entered or renewed on or after Jan. 1, 2023. The unpaid principal, or original amount still owed, must be under $50,000 for personal consumer debt or $200,000 for medical debt. Debts involving fraud and certain other claims do not qualify.
Whether you hold a contract or a court judgment, the interest owed is only part of what determines how much you can recover from an estate.
How can filing deadlines affect interest recovery?
Interest may keep growing after a debtor dies. However, missing a claim deadline could prevent you from collecting it.
You generally have one year after the debtor’s death to file a lawsuit over an unpaid debt. Although California allows limited exceptions to this rule, probate claims may also face shorter filing deadlines.
What could limit your interest recovery?
If an estate owes more than it owns, it is insolvent. You may recover only part of the original debt and little or none of the interest. The state also requires estates to pay certain debts before general unsecured claims.
Your ability to recover payment depends on the type of debt, applicable filing deadlines and the assets remaining in the estate. A California probate attorney can help check the interest owed, review estate assets and address issues that may affect payment.