24 September 2024
/ Matthew W. Pomy
Secured Creditor Collections in Probate: Three Key Considerations
When a borrower passes away, their debts don’t necessarily disappear. For secured creditors, such as those holding auto loans, solar panel loans, or other secured transactions, it is important to understand the role of probate and how best to ensure repayment while moving through the process.
In probate, the decedent’s estate is used to pay off outstanding debts before assets are distributed to heirs. These payments are made based on a payout structure defined in the jurisdiction’s probate code. Luckily, for secured creditors, they enjoy a high place on that priority scale. However, when it comes to secured debt, creditors still face unique challenges in moving through this process. Here are three essential things to keep in mind!
If the creditor fails to do so, they may lose their ability to collect on the debt, even if it is secured by collateral. Beyond that, they may limit their recovery options if the estate does not have sufficient assets to pay creditors in full. Each jurisdiction has its own deadlines for filing claims, and missing those deadlines can be costly. Acting promptly helps protect the creditor’s interest and prevents unnecessary delays.
Relatedly, it's also essential to file suit, depending on the jurisdiction, if the estate contests the validity of the claim or attempts to delay repayment. The probate process can drag on, and relying solely on estate representatives’ promises may jeopardize the creditor’s ability to recover the full value of their collateral.
For instance, some estates reject all claims that are filed against them. If a solar panel lender received a rejection of their claim and takes assurances of the estate that they’ll be paid once the house sells and doesn’t move forward on that rejection, their rights could be negatively impacted if the estate suddenly decides not to sell the house and claims to be insolvent later. So it is important that secured creditors still be mindful of the probate process and continue to assert their rights to payment until payment is made or the obligation is assumed.
Alternatively, the estate may offer to settle the debt for a reduced amount, especially if the asset has depreciated. In some cases, working with the estate on unconventional arrangements, such as payment plans or selling the collateral through the estate, can result in a more favorable recovery than strict adherence to a rigid process. Beyond being strategically beneficial, it is also just generally a good idea to be open to being as flexible as would be reasonable with estates and their heirs given the trying time they are likely going through.
The bottom line is that secured creditors must balance diligence with creativity and understanding. By filing claims early, taking proactive steps to protect collateral, and maintaining flexibility, creditors can improve their chances of recovery in probate.
Our team is constantly monitoring this topic in our ever-changing industry. If you have additional questions about our probate recovery solutions or would like to connect with probate manager Michelle Moore or attorney Matthew Pomy, feel free to connect at any time.
This blog is not a solicitation for business and it is not intended to constitute legal advice on specific matters, create an attorney-client relationship or be legally binding in any way.
In probate, the decedent’s estate is used to pay off outstanding debts before assets are distributed to heirs. These payments are made based on a payout structure defined in the jurisdiction’s probate code. Luckily, for secured creditors, they enjoy a high place on that priority scale. However, when it comes to secured debt, creditors still face unique challenges in moving through this process. Here are three essential things to keep in mind!
1. File a timely claim in probate
One of the most crucial steps for a secured creditor is filing a timely claim with the estate. This ensures that the debt is officially recognized by the court handling the probate process. It will also provide the estate with your contact information and important information about the debt if they were not involved in the financial affairs of the decedent. Having the claim be a matter of record also may cause the same to come up in an eventual title search which can also generate payments.If the creditor fails to do so, they may lose their ability to collect on the debt, even if it is secured by collateral. Beyond that, they may limit their recovery options if the estate does not have sufficient assets to pay creditors in full. Each jurisdiction has its own deadlines for filing claims, and missing those deadlines can be costly. Acting promptly helps protect the creditor’s interest and prevents unnecessary delays.
2. Be proactive in securing collateral
Even though estate representatives may provide assurances that payments will be made, secured creditors should be cautious and proactive. Keep in mind, while waiting for estate proceedings, the value of collateral (e.g., vehicles, property, or solar panels) may decrease or be damaged. Creditors must be prepared to assert their rights to repossess or foreclose on collateral if necessary.Relatedly, it's also essential to file suit, depending on the jurisdiction, if the estate contests the validity of the claim or attempts to delay repayment. The probate process can drag on, and relying solely on estate representatives’ promises may jeopardize the creditor’s ability to recover the full value of their collateral.
For instance, some estates reject all claims that are filed against them. If a solar panel lender received a rejection of their claim and takes assurances of the estate that they’ll be paid once the house sells and doesn’t move forward on that rejection, their rights could be negatively impacted if the estate suddenly decides not to sell the house and claims to be insolvent later. So it is important that secured creditors still be mindful of the probate process and continue to assert their rights to payment until payment is made or the obligation is assumed.
3. Remain open to creative solutions
Finally, flexibility is key when dealing with estates. Secured creditors can benefit from exploring a variety of solutions to ensure recovery. For instance, heirs may be willing to assume the responsibility for the debt in order to retain valuable assets like cars or home solar systems.Alternatively, the estate may offer to settle the debt for a reduced amount, especially if the asset has depreciated. In some cases, working with the estate on unconventional arrangements, such as payment plans or selling the collateral through the estate, can result in a more favorable recovery than strict adherence to a rigid process. Beyond being strategically beneficial, it is also just generally a good idea to be open to being as flexible as would be reasonable with estates and their heirs given the trying time they are likely going through.
The bottom line is that secured creditors must balance diligence with creativity and understanding. By filing claims early, taking proactive steps to protect collateral, and maintaining flexibility, creditors can improve their chances of recovery in probate.
Our team is constantly monitoring this topic in our ever-changing industry. If you have additional questions about our probate recovery solutions or would like to connect with probate manager Michelle Moore or attorney Matthew Pomy, feel free to connect at any time.
This blog is not a solicitation for business and it is not intended to constitute legal advice on specific matters, create an attorney-client relationship or be legally binding in any way.
