Question: I loaned my friend money and, before he could repay me, he died. Will I still be able to collect the debt owed to me?
Collecting DebtsYes, there are procedures to collect debts from someone who died. However, the collection of the debt is dependent on whether the deceased person has money in his/her estate to pay the debt and whether the creditor has followed the proper legal requirements to collect the debt from the deceased person’s estate.
Creditor's First StepA creditor’s first step is to see if an estate proceeding was filed in the Surrogate’s Court asking the Court to appoint a fiduciary for the estate. A fiduciary is the person a Court appoints to oversee and manage the affairs of a deceased person. In order to find out if a fiduciary is appointed, a creditor can ask the deceased person’s family members or go to the Surrogate’s Court in the county that the deceased person resided in to search the records.
Next StepsOnce a creditor determines that a fiduciary for the estate was appointed by the Court, the creditor then must notify the fiduciary in writing that the deceased person owed the creditor a debt. The written notification must contain the amount of the debt and detail the facts that created the debt. It would be beneficial to include any evidence to show the debt is valid with your written notice to the fiduciary. The written notice must be served within 7 months of the Court’s appointment of the fiduciary of the estate. Once the fiduciary receives the written notice from a creditor, the fiduciary can pay the claim, but is not obligated to do so. The fiduciary may reject the claim, in whole or in part, if the fiduciary does not believe the debt owed is a true debt of the deceased person. If a creditor’s claim is rejected, a creditor would need to ask the Court to determine if the creditor’s claim is valid or not. If that Court determines the claim is valid, the Court will direct the fiduciary to pay the creditor. Even if a fiduciary believes the debt owed is valid, a fiduciary may not have enough money to pay all the creditors of a deceased person. As such, each creditor may only receive a portion of the debt owed or nothing at all if other creditors are determined to be more important creditors. Examples of some of the more important or priority creditors are the IRS, NYS Taxes, funeral expenses, lien/judgment holders.
ConclusionIf an estate proceeding seeking the appointment of a fiduciary is not filed, a creditor can start the proceeding. However, this is a difficult and complicated process. The best way to ensure payment on a debt owed to you by a deceased person is to consult with an estate administration attorney.