Allowing a Creditor’s Claim
What Does It Mean to “Allow” a Creditor’s Claim?
To “allow” a Creditor’s Claim means that you have determined that the claimant’s Claim:
To “allow” a Creditor’s Claim does not mean:
- That the obligation is necessarily now due and owing. It could be a valid debt due sometime in the future, such as a Promissory Note that has not matured).
- That the estate necessarily has the ability to pay the Claim. “Allowance” of a Creditor’s Claim focuses on the validity of the Claim, not the ability of the estate to pay it (that is addressed by the “ranking” of claims and other expenses under RCW 11.76.110 — See Estate Insolvency). “It [is] not necessary for the claimant to show there was … property available for payment of the claim. It is not a condition precedent to the allowance of claims that there be assets sufficient to satisfy the claims.” Estate of McHugh, 165 Wash. 123, 129-30 (1931)/li>
- That the Claim will ever be paid. If the estate has no cash or other assets, no Claim will ever be paid, even if properly presented, allowable, and allowed.
- That if the Claim is eventually paid, when it will be paid.
Following allowance, you must:
- “… notify the claimant of the allowance ….” RCW 11.40.090(1) And if the estate is insolvent, meaning that it has insufficient cash and other assets to pay all of its obligations:
- “Rank” each Claim “… among the acknowledged debts of the estate to be paid expeditiously in the course of administration.” RCW 11.40.090(3) (Insolvency inevitably means that one or more of the claimants will receive something less than the whole amount of their Claim and may receive nothing on their Claim. Upon insolvency, the “ranking” process determines among all the claimants, “who gets what.”)
Presumably, even in the case of solvency, all Creditor’s Claims are required to be paid “expeditiously.” While Washington Courts have been silent on this matter, “expeditiously” might mean anywhere from:
- “Immediately” if there is no potential issue of estate insolvency and the estate is flush with cash, to
- “Promptly following the expiration of the Creditor’s Claim statute of limitations period,” if the estate could conceivably become insolvent, to
- “Upon the closing of the estate” if the estate is solvent but cash poor, to
- “Never” if the estate is insolvent.
Practically speaking, a creditor has very little recourse to force the payment of an allowed but unpaid Creditor’s Claim before the Personal Representative determines to close the estate.
Now, let’s move from “what does ‘allowing’ mean” to “how do you allow.”
Allowing Claims for $1,000 or Less
All lawfully presented Claims for $1,000 or less are presumed to be allowed (RCW 11.40.090(2)), so for such Claims you really have only one decision (besides negotiation): Whether or not to pay it in full. If you decide to pay it in full, following the instructions on Paying a Creditor’s Claim. If you decide not to pay it in full, follow the instructions on Rejecting a Creditor’s Claim. Consequently, the question of “How to Allow a Creditor’s Claim?” largely concerns only Claims for more than $1,000.
Caution: Due to the presumption stated in the foregoing paragraph, if you “hold” (ie, do nothing about) a lawfully presented Creditor’s Claim for $1,000 or less, you will be considered to have allowed it. Therefore, the burden is on you to actively reject it or eventually be obligated to pay it — you cannot simply sit on it and hope that it will go away.
Allowing Claims for More Than $1,000
If you have determined to allow such a Claim:
- Complete the Creditor’s Claim that you received from the claimant.
- Mail a copy of your completed Creditor’s Claim to the claimant at the address shown on the Creditor’s Claim.
- File the original of your completed Creditor’s Claim with the Court.
If you are not allowing the full amount of the Creditor’s Claim, go to Rejecting a Creditor’s Claim and follow Steps 2 through 4 of those instructions.
Timetable: Do all the above by the later to occur of:
- 4 months from the date of first publication of your Probate Notice to Creditors, or
- 30 days from the date of your receipt of the Creditor’s Claim.
“Holding” Creditor’s Claims (ie, Taking No Action about Them)
For Claims of $1,000 or less: As stated above, “holding” a Claim of $1,000 or less results in your being considered to have allowed it. So “holding” a Claim largely concerns only Claims of more than $1,000.
For Claims of more than $1,000: By “holding” a Claim of more than $1,000, you are effectively putting the issue back in the claimant’s lap:
- You can’t close the estate until the Claim is resolved, but
- The claimant is forced to put further energy into pursuing it. Specifically, the claimant can notify you in writing that he or she will petition the Court to have the Claim allowed. If you then continue neither to allow nor reject the Claim nor notify the claimant of your allowance or rejection within 20 days of your receipt of the claimant’s notice, the claimant can petition the Court for a hearing to determine whether the Claim should be allowed or rejected (in whole or part). RCW 11.40.080(2)
Caution: If the Court substantially allows the Claim, you (meaning the estate) not only will become liable for the amount allowed by the Court but also may become liable for the claimant’s reasonable attorney’s fees to obtain the Court’s allowance. RCW 11.40.080(2) Furthermore, if you had no reasonable basis for not allowing the Claim (eg, you had a personal grudge against the claimant and refused to allow the Claim out of spite or if you uniformly don’t allow Creditor’s Claims, thus favoring the Heirs and Beneficiaries over the creditors), the estate’s Heirs or Beneficiaries may be able to obtain a Court Order shifting the claimant’s reasonable attorney’s fees from the estate to you personally.