Pub. 15 2020-21 Issue 6

WWW.NEBANKERS.ORG 12 Collecting Your Loan from an Insolvent Probate Estate COUNSELOR’S CORNER Randy Wright and Jesse Sitz , Partners, Baird Holm, LLP W HEN A PERSON DIES WHILE INDEBTED AND ESTATE assets appear insufficient to pay all the debts, lend - ers may want to look carefully at the probate pro- cess. There are options and tools available to help collect at least a portion of the debt, even if the estate appears to be insolvent. This article will highlight some basic concepts involved in collecting from an insolvent probate estate. A. Verifying that a probate estate exists — or causing one to be opened. Just because someone dies does not mean that a probate case will necessarily be opened. For example, if a decedent’s property passes through “non-probate” transfers — e.g., joint tenancy, transfer on death or payable on death designations, or transfers to a trust — the property would pass by opera- tion of law to family members or other recipients. Also, family members may be unfamiliar with the probate process or fear its costs and may not understand that it might be needed. But if creditors are not being paid, they can urge heirs to file a probate. Failing that, a creditor has the option of starting probate proceedings themselves, even without the cooperation of heirs. Creditors who think that a probate case might already exist but who have not received a notice should inquire at the county where the decedent lived. The court clerk should be able to check on pending probates, and lawyers can also ac- cess that information. Creditors of a decedent are considered “interested par- ties” by Nebraska law and can therefore file a petition to probate an estate, even if no heir has done so. That creditor can even nominate its own representative to be the personal representative of the estate. A family member or close family associate can also be asked to serve. B. Filing a claim in the probate proceeding. Once a probate proceeding is opened, the creditor should file a claim against the estate. Generally, a claim should be filed within 60 days of the date of mailing of the notice by the per- sonal representative providing the creditor with notice of the probate’s opening. If a creditor fails to file a claim, the creditor may be able to proceed against collateral if properly secured but may not be able to proceed against the estate for personal obligations of the decedent, such as personal guaranties.