Debts after Death: What New Jersey Executors and Administrators Should Know About Creditor Claims

The administration and distribution of an estate does not necessarily bring creditor issues to an end.  New Jersey law establishes a detailed framework governing creditor claims against estates, and fiduciaries and beneficiaries alike should understand the circumstances under which estate assets—or distributed assets—may remain subject to those claims.

The obligation to pay any outstanding debts existing at the time of a person’s death falls to the personal representative (i.e., executor or administrator) of the deceased person’s estate.  Under New Jersey law, a creditor must present the amount and the particulars of any claim to the personal representative—in writing and under oath—within nine months following death (N.J.S.A. 3B:22-4).  The personal representative is then required to allow or dispute the claim within three months (N.J.S.A. 3B:22-7).  If the claim is disputed, the creditor must commence an action within three months thereafter (N.J.S.A. 3B:22-8), or risk that the personal representative will distribute estate assets that might otherwise have been used to satisfy the debt. 

If the creditor fails to present a timely claim, New Jersey law still permits a late claim to be asserted against any assets that have not yet been distributed from the estate (N.J.S.A. 3B:22-10).  If the personal representative is dissatisfied with the correctness of a claim, he or she must notify the creditor to “proceed forthwith” to establish the claim by way of a court judgment and must reserve sufficient assets to satisfy the judgment if the creditor prevails (N.J.S.A. 3B:22-11).  Critically, the creditor has only one month after such notice to commence litigation (N.J.S.A. 3B:22-13), or will lose the right to recover from the personal representative. 

Even if none of the above remedies are available, the creditor is not entirely without recourse.  A personal representative must obtain a refunding bond from any beneficiary receiving distributions from the estate (N.J.S.A. 3B:23-24), and a creditor may bring an action on that bond to recover payment of a lawful debt (N.J.S.A. 3B:22-18).  Any recovery, however, is limited to the amount actually received by the beneficiary. 

There are many additional issues presented by creditor claims, such as (a) whether assets that typically pass outside of the estate (e.g., certain bank accounts or jointly held property) may nevertheless be available to satisfy estate debts; and (b) whether valid defenses exist, such as the expiration of the applicable statute of limitations.  Accordingly, whether you are a creditor, personal representative or a beneficiary, it is important to consult with an attorney when evaluating these issues for any particular situation.