Most people (some more than others) leave unpaid debts behind when they die and the process of administering an estate must deal with these debts.

Although complexities can arise, the procedures for dealing with unsecured creditor claims against an estate generally work like this.

The personal representative for the dead person — the “decedent” — places a notice in a newspaper published in the county where the estate is being administered. (Note: this may be a newspaper you’ve never heard of.) The notice states that anyone having a claim against the estate must present the claim by a specified date or the claim may be “forever barred.” The deadline is usually four months following first publication of the notice. However, the deadline cannot be any later than one year after the decedent’s date of death. The notice must be published at least three times, at weekly intervals.

The personal representative can also give a notice to file claims by mail to known creditors of the decedent. If notice is given in this manner, the deadline to file a claim will usually be the same as the deadline stated in the newspaper. It can be extended to 60 days from the date of the mailed notice, however, if this would be a later date. Again, the deadline cannot be later than one year following the date of death. (The idea behind the one year, no matter what, claim filing deadline is to get estates settled expeditiously. After all, there may be people out there already spending their inheritance.)

Claims must be made in writing and must give the name and address of the claimant, the amount of the claim and a description of the basis for the claim sufficient for the personal representative to evaluate the claim.

If the personal representative thinks a claim is not valid, a notice of disallowance goes out to the claimant. A notice of disallowance must be given within 63 days following the deadline for submitting a claim. Otherwise, the claim is deemed valid. If the claimant doesn’t agree with the personal representative’s decision to disallow a claim, the claimant has 63 days from the notice of disallowance to start a legal proceeding to determine validity of the claim.

Secured creditors (for example, the mortgage company having a lien on the decedent’s home and the bank having a lien on the decedent’s automobile) play by different rules. They have the right to realize on their collateral at any time the obligation due them goes into default, and sometimes loan documents treat death as a default. So the personal representative needs to move quickly to deal with these debts or risk losing equity in assets that stand as collateral.

The personal representative can pay claims at any time during the administration of the estate if the estate has ample resources to pay all claims. However, if the total of claims might exceed the total of the estate’s assets available for claims, the payment gets more complicated. This is so in part because claims must be paid under a system of ranking. For example, all claims for federal income taxes must be paid before claims for medical expenses of the decedent’s last illness can be paid. All creditors in a higher-ranking class must be fully paid before any of the creditors in a lower class get anything.

Standing at the top of the estate administration food chain, before claims of creditors are paid, are costs of administering the estate; funeral, burial and cremation expenses; and a “family allowance” and “exempt property allowance” intended to help the decedent’s dependents keep the lights on during the period of estate administration.

Jim Flynn is with the Colorado Springs firm of Flynn & Wright LLC. Email: [email protected].