Few people are fortunate enough to make it through life without accumulating any debt. When an individual passes away, their loved ones and heirs often wonder what happens to any credit or loan balances a deceased person left unresolved.

If you’ve been tasked with administrating an estate or are simply wondering whether your inheritance can be impacted by debt, you should understand that California has its own state-specific laws regarding creditor claims. Paying creditor debt after a loved one's death Kavesh Minor & Otis

Creditors Always Get Notice In California

In California, notifying potential creditors of an individual’s death is a mandatory step in the probate process. For California’s probate claims, anyone who’s tasked with executing an estate must:

  • Promptly notify the deceased person’s creditors
  • Allow time for creditors to make their claims
  • Approve or dispute any claims

Creditors have 60 days to file a claim from the date an estate executor notifies them that the estate is in probate. If the decedent did not name an executor for their will or trust, creditors have four months to act after an estate representative has been appointed by a California probate court.

While creditors are given the first opportunity to stake their claims to a decedent’s assets, they cannot hold heirs financially responsible for the deceased person’s debts. Creditor claims are settled with a decedent’s estate—not the decedent’s heirs.

Creditors Can Go After Some Jointly Held Assets

California law does allow creditors to pursue a decedent’s potentially inheritable assets. In the event an estate does not possess or contain adequate assets to fulfill a valid creditor claim, creditors can look to assets in which heirs might possess interest, if:

  • The assets are joint accounts
  • The assets are considered community property

Creditors and Joint Accounts

Although federal law prohibits collectors from demanding that a decedent’s relatives make debt payments, creditors can try to recoup their losses from accounts that demonstrate joint legal responsibility.

Joint accounts are one such exception. If an individual with outstanding credit card debt

named a child or other individual as an accessory to a joint account, the surviving individual could be pressed to make payments—especially if the joint account was established to avoid relinquishing owed debt.

Similarly, if you co-signed a loan with the decedent, you’ll be responsible for making continued payments after their death—even if you don’t own the asset, or it wasn’t registered under your name.

Creditors and Community Property In California

California considers certain properties “community property.” If a decedent was married and still has a surviving spouse, most assets acquired after marriage are considered jointly owned. These jointly owned or acquired assets are what’s known as community property.

If a creditor can’t satisfy their claim through estate assets, they can demand that a surviving spouse resolve a balance on or through community property.

California’s Creditor “Priority” List

California also assigns creditors different levels of priority, and an estate executor must pay certain creditors before others. Creditor priority exists to ensure that individuals or entities with the most pressing claims have the best chance of recovering whatever debt they are owed.

Section 11420 of the California Probate Code has seven “priority” classes. They are:

  1. Administrative expenses, or all costs resultant from executing an estate
  2. Secured debts, liens, and deeds of trusts
  3. Funeral expenses
  4. Medical expenses, if illness was the cause of death
  5. Family allowances, or a “reasonable” amount of money or assets to any surviving spouse or children who were not intentionally excluded from a will or trust
  6. Wage claims of up to $2,000, which can be made by employees or contractors who did not receive payment for work done within 90 days of a decedent’s death
  7. General debts which do not fall into any of these categories

The list of potential creditors is fairly exhaustive. Since outstanding balances will not disappear when a person dies, the estate executor must fulfill any and all valid debts before disbursing inheritances.

Protecting a California Estate From Old Debt

There can be complications in the event a decedent’s estate does not have adequate assets to pay creditors. In some cases, an estate’s assets can be completely depleted by creditor claims, leaving little or nothing to its intended beneficiaries.

If you’re executing an estate or trying to protect your legacy from creditors, you should seek professional guidance. An experienced estate planning attorney can help you evaluate the validity of creditor claims; they can also recommend novel estate protection techniques such as creating an irrevocable trust for at-risk funds, properties, and other assets. The best tools depend on the size of your estate, the type of assets you possess, and the kind of debt you possess.

Do You Need Legal Help Regarding Probate Issues In California?

If a loved one died without a will and you need legal assistance regarding the probate process you should be speak with an experienced probate attorney as soon as possible. Contact us online or call our office directly at 800.756.5596 to claim your space at one of our free, informative seminars. Your attendance will qualify you for a discount for our probate services. We proudly serve clients throughout California with offices in Torrance, Newport Beach, Orange, Woodland Hills and Pasadena.


Philip J. Kavesh
Nationally recognized attorney helping clients with customized estate planning guidance for over 40 years.