How Creditor Claims Affect Estate Distribution

Probating a loved one’s estate is not an easy process. My clients frequently struggle with the complex legal and financial aspects of probate while simultaneously grieving a significant loss. This is especially true when creditors express interest in their loved one’s estate. 

Creditor claims can be unwelcome news even for clients familiar with the deceased’s finances. It’s natural to see them as adversaries. Many clients don’t like hearing this, but the fact is that if a loved one’s estate goes into Colorado probate, creditors have a right to know. 

Dealing with Colorado probate creditor claims can be extremely frustrating. However, knowing what to expect can alleviate many of the uncertainties of creditor involvement. This article explains what happens when a creditor files a claim against an estate. 

Notifying Creditors Gives Them Less Time to Make a Claim

Notifying the deceased’s creditors is an important part of settling an estate. It can also speed up the probate process, which can be advantageous. Here’s why:

If you know a decedent owed a debt at the time of their passing, that creditor is considered a known creditor.  If you are unaware of a debt at or after the decedent’s passing then that would be an unknown creditor/debt.  Known creditors do not have to be given direct notice, but unknown creditors are given a published notice through the probate process an a limited time to file a claim.  

A decision must be made as to whether to provide direct notice to known creditors of the decedent of their passing.  Known or reasonably known creditors if not given direct notice of the decedent’s passing have one year from the date of death to file a claim.  Those known creditors given direct notice have either 60 days from the written notice date or 4 months from the date of the first published notice date to unknown creditors to file a claim.  So, giving direct notice can shorten the time a known creditor has to file a claim.  If one year from the date of death has already passed when a probate is initiated, then no notice, published or direct, is required in most instances.

In Colorado, creditors can make a claim within a year of the decedent’s death. However, if the estate’s representative gives creditors notice, then the creditors have significantly less time to act. 

Filing a Notice to Creditors in Colorado 

Colorado law requires estate representatives to use print media to alert potential creditors of the probate. 

Publishing a notice to creditors in a daily or weekly newspaper once a week for three consecutive weeks in the county where the estate is being administered is satisfactory. This gives unknown creditors four months to make their debts known to the court. C.R.S. 15-12-803

Creditors Must Get in Line

In Colorado, it’s up to the estate’s personal representative to make a good-faith effort to notify any known or unknown creditors of the probate case. Once they do, creditors are put on notice. 

However, creditors must wait their turn. The Colorado probate process has a specific hierarchy for settling a decedent’s debts. 

In other words, if there are multiple claims against the estate, your loved one’s creditor may not rank highly enough on the list to actually get paid. By the time the estate’s representative likely has to deal with additional claims there may not be anything left in the estate to distribute. 

Creditors Get Paid Before Beneficiaries

In Colorado, valid, non-disallowed probate creditor claims are paid before distributions under a last will and testament. This ensures that all debts and obligations of the estate are settled before any distributions to beneficiaries under the will. This prioritization helps protect the rights of creditors, who are in the business of getting paid. 

This means the estate’s representative should take all claims from creditors seriously. If a Colorado probate creditor claims a financial interest in the estate, the representative is expected to assess the claim’s legitimacy. The creditor can request a hearing to determine the claim’s legitimacy even if the estate’s representative doesn’t find it credible. If the court finds the claim credible, the representative can be ordered to pay the claim.

Protect Your Inheritance From Creditors

At the end of the day, creditors are just trying to get paid. To them, it’s business. But for you, it’s personal. Without a knowledgeable estate and probate attorney advocating for your rights, your loved one’s estate could be compromised by creditors looking to make a quick buck. Call 303-688-0944 to begin your case assessment.