October 29, 2019

Filing a Timely Creditor's Claim

All people pass away owing some kind of debt. Some estates have large debts while others have small debts. If an estate is probated, the probate process provides an opportunity to file a claim against the decedent's estate. Each creditor is tasked with filing their claim in a timely manner. Otherwise their claim can be time-barred even if their claim is valid.

A recent published appellate opinion addressed the issue of when a creditor's claim is timely filed.

Estate of Holdaway (2019) _______ CA4th _______

"The decedent died on June 13, 2013. On June 11, 2014, Everett filed a petition for probate and creditor's claim seeking $90,875. The claim was based on (1) four loans to the decedent, totaling $25,200; (2) unspecified "in-home services" she provided to the decedent, valued at $24,000; (3) unspecified "in-home expenses" of $17,675 she incurred on the decedent's behalf; and (4) "certain property" owned by Everett in the possession of the decedent at the time of his death, valued at $24,000.

After five continuances requested by Everett's counsel, in March 2015 the trial court issued an order to show cause why the petition should not be dismissed for failure to prosecute. On May 7, 2015, the trial court ordered the case "dismissed without prejudice as to [the] entire action" for failure to prosecute.

In December 2015, Everett filed another petition for probate with the trial court under the same case number as her previous petition. In May 2016, Holdaway, who is the decedent's son, filed a competing petition for probate. The competing petition stated that the decedent had died testate, and attached an attested and subscribed will that left all the property to a family trust he had established. The will nominated the decedent's wife or, in the alternative, Holdaway, as executor. In October 2016, the trial court granted Holdaway's competing petition, dismissed Everett's petition, appointed Holdaway as the personal representative of decedent's estate, and admitted the will. There were no objections to these rulings, and the court noted that the dismissal of Everett's petition was "by agreement" of the parties.

On March 10, 2017, Holdaway formally rejected Everett's creditor's claim against the estate. On May 19, 2017, Everett filed her complaint challenging the rejection, seeking damages in the amount of the claim, $90,875.

Holdaway demurred to the complaint, arguing among other things that it was time barred under Code of Civil Procedure section 366.2, and that in any case it was barred by other statutes of limitations. The trial court sustained Holdaway's demurrer without leave to amend."

On appeal, the appellate court reversed the trial court holding that only the estate's personal representative had the power to reject Ms. Everett's creditor claim. Since the personal representative did not reject the claim until March 10, 2017, Ms. Everett had 90 days thereafter to file her lawsuit against the estate.

The fact that Ms. Everett initiated her lawsuit years after the decedent's death was immaterial. Normally a claim must be filed against a decedent's estate within 1 year of death. Code of Civil Procedure section 366.2. In this case though, since Ms. Everett had filed her creditor's claim within 1 year of the decedent's death, the statute of limitations was tolled until it was rejected by the personal representative on March 10, 2017. Following the personal representative's rejection, Ms. Everett had 90 days to commence a lawsuit. She timely did so by filing her complaint on May 19, 2017.