How are estate creditors handled?
A creditor or other claimant may file a paper called a “statement of claim” against the estate with the Clerk of the Circuit Court. This claim is generally required to be filed within the first three months of publication of a prescribed notice in a countywide newspaper. This three-month period is referred to as the “nonclaimed period.” The personal representative or any other interested person may file an objection to the statement of claim, after which the claimant must file a separate independent lawsuit to pursue the claim. The U.S. Supreme Court has mandated that the personal representative use diligent efforts to give actual notice of the probate proceeding to “known or reasonably ascertainable” creditors, to afford them an opportunity to file claims. A valid claimant is not viewed as an adversary of the personal representative or the beneficiaries, but in fairness is viewed as one entitled to whatever is properly due. 14. HOW IS THE IRS INVOLVED? For federal tax purposes, death
As part of the probate process, creditors are notified of the death (specific requirements for notification vary from state-to-state, and may vary from a personal letter to a notice published in an obscure weekly newspaper). Creditors must then file for the amounts due within a fixed period of time to either the Personal Representative or, in some states, with the court. If the claim is approved, the bill is paid out of the estate. If the claim is rejected, creditors must sue for payment. If there are insufficient funds to pay taxes, states have statutes of one kind or another establishing who gets paid first. Personal Representatives most likely will commence selling estate property to pay off approved creditors claims.
