A creditor is a person or entity who is owed money. If you owe money to someone at any point in time, you are a debtor to them.
The powers and definition might vary depending on the type of creditor and debtor involved in the transaction. Creditors can be secured, unsecured, or contingent in a probate proceeding. Depending on the circumstances, debtors might be either the decedents themselves or the beneficiaries of their estate or trust.
How Creditors get back debt
How a creditor is repaid after a decedent’s death will depend on various circumstances, including whether or not the debtor put up collateral or security while taking out a loan, the type of debt due, and the size of the decedent’s estate.
As a result, it is not guaranteed that all creditors’ claims will be satisfied, as the decedent’s estate or trust may not have enough assets to cover all of the decedent’s debts in full. When there are insufficient assets to pay all of a debtor’s creditors’ claims, California law prioritizes the claims of certain creditors over the claims of other creditors.
Secured Party Creditors
Secured party creditors are guaranteed collateral in exchange for a loan, purchase, or line of credit. Secured loans carry a low risk of default because creditors can repossess, foreclose on, or force the sale of the secured property without the need to file a lawsuit if the debtor fails to make a payment. Mortgages and auto loans, for example, are examples of secured loans.
A loan, purchase, or line of credit is not guaranteed to unsecured creditors in exchange for the money they lend. For this reason, unsecured loans are generally considered risky for creditors to make. Unsecured creditors will take into account an applicant’s credit history, as well as their income and savings, before granting them an unsecured loan approval. Debtors can negatively affect their credit history and credit score if they fail to make their loan payments on time. Credit cards and student loans are both examples of unsecured loans.
Contingent creditors have potential claims against debtors; however, the amount and liability of these claims are not fixed at the time of filing. What exactly does this imply? It is uncertain whether or not the debtor, their estate, or the estate beneficiaries will ever be held accountable for the debt because the legality of contingent creditor claims is dependent on a future event that may or may not occur.
See also: Determining The Amount Of Money You Can Receive As Advance On Your Inheritance – Expert Guide
Creditor vs. Judgment Creditor
A creditor becomes a judgment creditor after demonstrating in a legal action that they are owed a specific obligation; the party owing the debt – which in probate is either a decedent’s estate or the beneficiaries of a decedent’s estate – is referred to as the judgment debtor.
Unlike ordinary creditors, judgment creditors have an easier time collecting debts from estates and trusts because they have already demonstrated the legitimacy of their claim in court and, as a result, are authorized to use the probate court system to collect the obligation. What exactly does this imply? Foreclosure, repossession, and forcing property sale are all options available to judgment creditors if judgment debtors refuse to pay or are unable to pay.
Using the services of an estate lawyer, judgment creditors can better enforce their rights by assisting them with the filing of their claim in court and by taking steps to force a decedent’s estate or trust to settle the obligation in its entirety.
How creditor is used in probate
A creditor has the right to pursue the beneficiaries of a deceased debtor’s estate to recover any outstanding debts owed by the deceased debtor to the creditor. In contrast, a creditor can only recover from a beneficiary (of a deceased debtor’s estate) to the degree that the beneficiary received benefits from the deceased debtor’s estate.
The type of property that a creditor may be able to seize differs from state to state. Typically, the creditor can seize a portion of your net wages—typically up to 25 percent, with a higher percentage if the judgment is for child support—as well as bank and other deposit accounts, as well as valuable personal property such as automobiles and antiques if the judgment is for child support. You may lose some of your assets, but creditors will not be able to take everything you own.
Read here about Probate Loans: Everything You Need To Know! to get you properly informed and ready for your inheritance advance
Every state has a specific property that has been declared “exempt,” which implies that it is not subject to the claims of your creditors, including judgment creditors. Just because you owe money, you shouldn’t be forced to give up everything you possess. To survive, you must consume food, maintain a roof over your head, clothe yourself, and provide for your family. If you have a few things, you may find that most of what you own is exempt from taxation.