Creditor Claims

When a formal probate administration is initiated, pleadings will be filed with the relevant circuit courts having jurisdiction over the decedent’s estate. Once the clerks accept the pleadings, they will be placed on the court’s docket and assigned a case number. Anytime after a case number has been assigned, a potential creditor can file a claim against the estate. Most claims are composed of a single piece of paper identifying the creditor, the amount owed and the underlying reasons for the claim, sometimes with supporting documentation.

The clerks will mail any creditor claims directly to the attorney representing the personal representative of the estate. The personal representative is in charge of reviewing such claims in order to determine if they are legitimate and how to respond. The personal representative can request supporting documentation from the claimant to confirm the amount owed, can negotiate with the creditor for some type of settlement, or can potentially object to the claim. If the claim is objected to, the creditor will have 30 days from the receipt of the objection in order to initiate a separate civil suit against the estate in order to enforce the claim. If the claimant does not initiate a suit within the 30 day time period, the claim is barred. It’s prudent for the personal representative to obtain an order striking the claim once barred.

To understand the impact of creditor claims on probate, we first need to define what probate is. Probate, or the probate process, is the court proceeding for establishing an estate of the decedent, and for transferring a decedent’s assets to identified beneficiaries, either via a last will and testament, or via intestate statutes. This formal proceeding ensures that all interested parties are served notice of what assets fall into the estate, as well as what portion of the estate each beneficiary is entitled to receive.

In Florida, during a formal probate administration all estates are required to publish a notice to creditors in the local newspaper which signifies the beginning of a 90 day creditor period. During this three month period any potential creditors of the decedent can file claims for reimbursement. Each claim will be filed on the docket and a copy will be provided to the personal representative either by a clerk, or by the attorney on record for the estate. It is the personal representative’s responsibility to review each claim in order to substantiate if it is valid and/or if sufficient documentation has been provided. The personal representative will then have an opportunity to pay the claim, object to the claim or negotiate directly with the claimant for a reduced settlement amount. Any objections will be served on the claimant, providing them notice that they have 30 days to initiate a civil lawsuit against the estate to enforce their claim, otherwise the claim will be barred or stricken. The personal representative and the claimant also have the option of entering into a joint stipulation to freeze the 30 day timetable for filing an independent lawsuit until more information is gathered. Often these stipulations are utilized in order to provide the personal representative with additional time to collect assets, as well as to ensure there are no additional creditors waiting to file claims before the expiration of the creditor period. These stipulations are also helpful in estates where liquidity or insolvency are potential concerns. Florida Statute 733.707, provided below, outlines the categories that creditors must be organized into, as well as outlines the order or priority in which each type of claim must be paid. All highest level claims must be paid first, before moving on to pay lower category claims.

Upon the expiration of the 90 day creditor period, the personal representative should have a complete picture of which claimants are potentially owed money, as well as what assets are available to satisfy those claims. The judge does not review any claim or make a determination as to the validity of the claim unless the claimant brings an adversarial proceeding against the estate. An experienced probate attorney can provide guidance during the probate process, including how best to address any claims that may be file.

733.707 Order of payment of expenses and obligations.—

(1) The personal representative shall pay the expenses of the administration and obligations of the decedent’s estate in the following order: (a) Class 1.—Costs, expenses of administration, and compensation of personal representatives and their attorneys fees and attorney’s fees awarded under s. 733.106(3). (b) Class 2.—Reasonable funeral, interment, and grave marker expenses, whether paid by a guardian, the personal representative, or any other person, not to exceed the aggregate of $6,000. (c) Class 3.—Debts and taxes with preference under federal law, claims pursuant to ss.409.9101 and 414.28, and claims in favor of the state for unpaid court costs, fees, or fines. (d) Class 4.—Reasonable and necessary medical and hospital expenses of the last 60 days of the last illness of the decedent, including compensation of persons attending the decedent. (e) Class 5.—Family allowance. (f) Class 6.—Arrearage from court-ordered child support. (g) Class 7.—Debts acquired after death by the continuation of the decedent’s business, in accordance with s. 733.612(22), but only to the extent of the assets of that business. (h) Class 8.—All other claims, including those founded on judgments or decrees rendered against the decedent during the decedent’s lifetime, and any excess over the sums allowed in paragraphs (b) and (d).

Yes, it is highly recommended that you give notice to secured creditors and all reasonably ascertainable creditors.  What giving notice does is dramatically reduce the amount of time that creditors have in which to file their claims against the estate.  Any reasonably ascertainable creditor, which includes secured creditors, have two years from the date of death to file claims against the estate, even if the estate publishes a notice to creditors in the newspaper.  This uncertainly can create significant problems in the future if the beneficiaries of the estate have already spent the assets. It could also be a big problem for the personal representative, who released the assets to the beneficiaries without dealing with all the necessary creditor claims.  It is entirely possible that a court would find that a secured creditor was “reasonably ascertainable,” potentially making the personal representative liable for amounts owed to the secured creditor.

Any creditors that file a formal claim against an estate are paid according to Florida statute in the order priority determined by the Florida legislature.  Paying debts that the estate owes to creditors is one of the most important duties that a personal representative has under Florida law.  If an estate has very little funds, and is potentially insolvent, it is pivotal that remaining assets be used to pay the correct creditors.  It is always advisable to not pay any creditor claims until an inventory is submitted and the creditor period has expired, so that you have a clear picture of all the outstanding creditors, as well as the approximate amount available to satisfy the claims. Florida Statue §733.707 lists 8 classes of creditors which should be paid in descending order as follows: Class 1—Costs, expenses of administration, and compensation of personal representatives and attorneys’ fees. Class 2—Reasonable funeral, interment, and grave marker expenses up to $6,000. Class 3—Debts and taxes with preference under federal law and claims in favor of the state for unpaid court costs, fees, or fines. Class 4—Reasonable and necessary medical and hospital expenses of the last 60 days of the last illness of the decedent, including compensation of persons attending the decedent. Class 5—Family allowance (so that the surviving spouse and children can have financial support during the probate process) Class 6—Past amounts owed for court-ordered child support. Class 7—Debts acquired after death by the continuation of the decedent’s business. Class 8—All other claims, including those founded on judgments or decrees rendered against the decedent during the decedent’s lifetime.