Claims Against the Estate

PR gives notice to creditors [already covered]

Presentment by Creditor -- GenerallyCreditor must file a claim:

With PR or court, and▪ PC §§ 298, 308▪ EC §§ 355.001, 355.002

With supporting affidavit (under oath) containing statutory elements.▪ PC § 301▪ EC § 355.004

Claims Against the Estate

[continued]

Which claims need to be presented?Must present claim “for money”

and have it rejected before creditor can receive a court judgment.▪ PC §§ 314▪ EC §§ 355.065

Unliquidated claims do not have to be presented.

Question 5 – p. 151

Time of Presentment

General Rule – Any time before: Estate closed, or Statute of limitations runs▪ PC § 298▪ EC §§ 355.001

Time of Presentment

Exception for unsecured creditor who received notice 4 months after receipt of notice (PC

§ 298) 120 days after receipt of notice (EC

§ 355.060)

Secured Claims

Types of Claims Mortgage Deed of trust Article 9 secured interest

Creditor has choice of how to proceed.

Secured Claims

1. Preferred Debt and Lien Against the Collateral▪ PC § 306(d)▪ EC § 355.154

CR gets top priority over the collateral, now and later in the hands of purchasers, heirs, and beneficiaries.

But, no right to deficiency if undersecured.

Presumed if no timely election.

Secured Claims

2. Matured Secured Claim▪ PC § 306(c), (c-1)▪ EC § 355.153

CR must subordinate claim to:▪ First $15,000 of funeral and last illness

expenses▪ Family allowance▪ Administration and other estate expenses

But, may recover deficiency from other estate assets.

Must be timely elected.

Secured Claims

If creditor elects matured secured claim status, creditor can get paid now even though debt is not yet due. Why is this permitted?

How does a creditor make the decision?

Secured Claims

Time for Creditor Election Later of:▪ Four months after receipt of notice, 0r▪ Six months after letters issued.

Action of PR on presented claimsTiming

Must act within 30 days.▪ PC § 309▪ EC § 355.051

Three options

Action of PR on presented claims1. Accept

PR agrees that the claim is valid. Does NOT mean claim will get paid

(might not be enough property in the estate).

Action of PR on presented claims2. Reject

PR states PR will not pay the claim (thinks it is bogus).

Creditor must file suit with 90 days of rejection or else claim is barred.▪ PC § 313▪ EC § 355.064

Action of PR on presented claims3. Do nothing

Claim is deemed rejected if PR does nothing within 30 days▪ PC § 310▪ EC § 355.052

Warning to creditor: This starts the running of the 90 day period to file suit.

Ethics of advising PR to do nothing to “trick” non-savvy creditors?

Claims Against the Estate

[continued]

WARNINGS for Independent AdministrationThe following rules do NOT

apply:1. No requirement with respect to

form in which creditor must present claim (affidavit not needed).

2. No requirement that claim be presented before suit.

3. 90 day period for suing on rejected claim does not apply.

Lusk v. Mintz – p. 152

When are claims paid?

1. When administration completed

2. As administration progresses

3. When creditor obtains court order after one year from issuance of letters PC § 320 EC § 355.107

Order of Payment of ClaimsAuthority

PC §§ 320 & 322 EC Chapter 355, Subchapter C Other provisions may also impact

the claim order.

Order of Payment of Claims1. Federal Tax Lien [and other

federal claims]

Exceptions from Rev. Rul. 80-112▪ Funeral expenses▪ Family allowance▪ Administration expenses

What is the policy behindthese exceptions?

Order of Payment of Claims2. Secured Creditor with

Preferred Debt and Lien How obtain?▪ Timely election.▪ Failure to elect timely.

Priority is only over the collateral. No ability to seek deficiency if

under secured.

Order of Payment of Claims3. Homestead (or allowance in

lieu)

Order of Payment of Claims4. Funeral expenses and

expenses of last illness up to a combined total of $15,000

Order of Payment of Claims5. Exempt personal property (or

allowancein lieu)

Order of Payment of Claims6. Family Allowance

x

Order of Payment of Claims7. Administration and related

expenses

Order of Payment of Claims8. Secured creditor who elected

matured secured claim status This priority is for amount that can

be realized from the collateral. Deficiency has a lower priority

(#13).

Order of Payment of Claims9. Delinquent and future child

support

Order of Payment of Claims10. Certain Texas tax claims

Order of Payment of Claims 11. Confinement claims

But not if convict had:▪ Surviving spouse,▪ Dependent minor child, or▪ Disabled child.

Order of Payment of Claims12. Medicaid Recovery

Order of Payment of Claims13. Unsecured claims

Order of Payment of Claims14. Beneficiaries and Heirs

▪ Following the abatement order

Order of Payment of ClaimsHope v. Baumgartner (p. 157)

Claims after estate distributedCreditor may seek recovery from

heirs, beneficiaries, and lower-ranked creditors up to amount received from the estate. Exceptions:▪ Claim barred by statute of limitations▪ Claim barred by the “non-claim” statute