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Seven Month Time Factor for Creditors

There is a widely held belief that a creditor must file a claim against an estate within seven (7) months after the issuance of letters by the Surrogate’s Court. This belief is based on a misinterpretation of the Surrogate’s Court Procedure Act. S.C.P.A. §1802 provides that if a creditor fails to file a claim within seven (7) months of the issuance of letters, the fiduciary shall not be chargeable for any assets distributed, or monies paid in good faith. This provision is not a statute of limitations and does not bar a creditor from filing a claim after the seven (7) month period.

The statute insulates a fiduciary from personal liability for making good faith distributions of assets that were subject to a creditor’s claim if that claim is not filed within seven (7) months of the issuance of letters.

Assuming assets were distributed in good faith and the claim is not otherwise barred, a claim filed after the seven (7) month period is valid but it may have to be enforced against the distributees. The issue in such circumstances is whether the fiduciary is personally liable to the creditor, or whether the creditor must pursue the individual distributees.

The key to determining the personal liability of the fiduciary is whether he distributed the assets in good faith. The good faith test is not an easy one for a fiduciary to pass. The fiduciary will be held liable if he should have known of the claim. It is not enough that he has not received a claim.

In one case in which a creditor’s claim was not filed within seven (7) months, the fiduciary, who had distributed most of the assets, was held personally liable because the death certificate listed a hospital as the place of death and this required the fiduciary to investigate whether the hospital bill was paid. There was no other information available to the fiduciary to reveal the possibility of a claim.

The courts do not take the good faith language lightly. If a fiduciary wants to avoid personal liability he should ascertain whether a Medicaid lien exists. If the decedent received Medicaid benefits, was age 55 or older and left no surviving spouse or minor or child who is disabled or blind, the fiduciary would be prudent not to distribute any assets, before or even after seven (7) months, until the question of a Medicaid claim is resolved. The elder law attorney should advise the estate fiduciary that a distribution even after seven (7) months will not defeat a Medicaid lien and if there is knowledge that Medicaid benefits were received by the decedent, the fiduciary, as well as the distributees, will be personally liable if assets are distributed.

If the decedent received Medicaid benefits, but no lien or notice has been filed, it is advisable that the fiduciary for the estate notify Medicaid that letters have been issued, thereby putting it on notice, and speeding up the process.

In many cases, Medicaid will send a notice to the estate that they intend to file a lien. This notice often contains a warning not to distribute the assets. The receipt of such a notice prevents a fiduciary from distributing assets in good faith, even in the absence of a lien. Medicaid uses the notice because it can be issued quickly.

It sometimes takes months for Medicaid to determine the amount of Medicaid benefits provided to the decedent that is subject to recovery. Because a lien must state a specific amount, the notice of intent to file a lien is used. In some cases, Medicaid will file a lien containing a fictitious amount, and later

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file an amended lien when they obtain the actual figures.

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This Post Has 4 Comments

    1. Hi Erin,

      Thank you very much for your interest in our blog and for your comment.

      The creditor may open an estate and file a claim for payment of a debt. We would be happy to meet with you to review relevant documents and facts involved and provide some guidance in moving forward. Please reach out to us to schedule a time to meet. Our office number is 516-683-1717.

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