Understanding Creditors' Claims While Administering an Estate

A lot of people have questions about claims creditors make against the estates they are administering. These include questions such as whether they need to be paid, when they need to be paid, and what they should to do preserve as many of the estate assets as possible. .

In South Carolina, there is an order for priority in which creditors’ claims must be paid. This priority is mandated by state law, and is outlined in SC § 62-3-805. If you pay claims as they come in and then, once the estate no longer has money to pay claims, someone with a higher priority than the people you already paid makes a claim, you could be personally liable. You should also know that any money you have spent as part of this process, including funeral expenses, has a higher priority than most claims. Before you pay the claims, you should really make sure you understand the rules.

Too often, someone comes to see us for help with an estate only after they have begun paying claims in the wrong order. At that point, there may not be much we can do other than trying to negotiate higher-priority claims down to a more reasonable number. However, this negotiation process is not guaranteed to work.

This leads to another point, which is that you may be able to negotiate with the creditors as they come in to each take smaller amounts so you can pay all of the bills. Just because they make a claim for a certain amount doesn’t mean they won’t negotiate with you. You may even need to litigate to get some claims down to more reasonable figures.

Finally, it is important to note that creditors should only be paid out of Probate assets. If the decedent had non-Probate property (such as life insurance proceeds paid directly to a beneficiary), it is important to not use that property to pay creditors, as they have no right to that money. If you don’t understand the difference between probate and non-probate property, it might be good to consult with a local attorney just to make sure you aren’t giving away anything you’re entitled to. If you would like additional information on what to watch out for during the probate process in South Carolina, give us a call to receive a FREE copy of our book, The Top Ten Most Common Mistakes Personal Representatives Make and How to Avoid Them. If you would like to set up a meeting with one of our attorneys, please give us a call or fill out the form to the right.

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