[WSBAPT] Creditor claim on debt not due

Fri Jan 6 13:26:12 PST 2023

This really requires knowing what type of debt is involved.  I agree with Josh that a guaranty should die with the guarantor’s passing, unless the primary obligor owed something at the time of death, which would be the limit of the estate’s obligation.  But to say a guarantee survives the guarantor’s death could leave to a very extended probate.  What about the 2 year limitation to file claims against the decedent?  Does that cut off the guarantee?  This isn’t like a Seller under a purchase & sale agreement dying.  Of course the Estate has to honor the deal.

This is like the evil time-share owners.  The time-share companies will not let you turn them back, during lifetime, continue to charge the maintenance fees even if the holder is 100 years old and in a nursing home.  They even try to say which heirs are going to pick up the obligation.  

Jeff

W. Jeff Davis

BELL & DAVIS PLLC

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From: wsbapt-bounces at lists.wsbarppt.com <wsbapt-bounces at lists.wsbarppt.com> On Behalf Of Joshua McKarcher
Sent: Friday, January 6, 2023 12:39 PM
To: WSBA Probate & Trust Listserv <wsbapt at lists.wsbarppt.com>
Subject: Re: [WSBAPT] Creditor claim on debt not due

What did Estate of Earls say about extinguishing, valuing, “discharging” (in bankruptcy terms) that guaranty? If it was personal, did it not die with the person? 

We have a ton of federal bankruptcy law to draw upon in such cases, and I guess I would think state supreme courts might take a peek into that system (or state receivership) and then figure out what to do with it in what is the equivalent of a “solvent bankruptcy.” 

I would think the public policy would be finality, not giving the holder of a “personal” guaranty some kind of never-ending right against the guarantor’s successors. They have a first-in-line debtor to go after, after all, so I don’t see the policy gain in giving that guaranty years of post-death effect.

Very interesting.

Thanks, Josh 

From: wsbapt-bounces at lists.wsbarppt.com <mailto:wsbapt-bounces at lists.wsbarppt.com>  <wsbapt-bounces at lists.wsbarppt.com <mailto:wsbapt-bounces at lists.wsbarppt.com> > On Behalf Of Eric Nelsen
Sent: Friday, January 6, 2023 1:22 PM
To: WSBA Probate & Trust Listserv <wsbapt at lists.wsbarppt.com <mailto:wsbapt at lists.wsbarppt.com> >
Subject: Re: [WSBAPT] Creditor claim on debt not due

Huh. I somehow never fully registered that the Estate really could just pay it off early. I have focused too much on paying only when due. I suppose the PR’s duty is probably best served by paying off the debt so the inheritance distribution can be made free and clear.

Bruce Moen’s reference to Estate of Earls (2011) raises a more complicated fact problem—a contractual obligation that simply can’t be satisfied by the PR. That case involved a lease personal guaranty signed by the decedent, which meant that (a) there was no actual debt due until after death, when the tenant didn’t pay; and (b) even if that current amount is paid, there’s no way to fully satisfy that obligation until the lease terminated.

So it’s still a conceptual issue—what to do about an obligation that can’t be paid off early but also extends years into the future. But I think the likelihood of encountering it is a lot more remote than I was thinking.

And, agreed, a security interest definitely does protect the creditor. RCW 11.40.135.

Sincerely,

Eric

Eric C. Nelsen

Sayre Law Offices, PLLC

1417 31st Ave South

Seattle WA 98144-3909

206-625-0092

eric at sayrelawoffices.com <mailto:eric at sayrelawoffices.com> 

Covid-19 Update - All attorneys are working remotely during regular business hours and are available via email and by phone. Videoconferencing also is available. Signing of estate planning documents can be completed and will be handled on a case-by-case basis. Please direct mail and deliveries to the Seattle office.

From: wsbapt-bounces at lists.wsbarppt.com <mailto:wsbapt-bounces at lists.wsbarppt.com>  <wsbapt-bounces at lists.wsbarppt.com <mailto:wsbapt-bounces at lists.wsbarppt.com> > On Behalf Of Joshua McKarcher
Sent: Friday, January 6, 2023 10:39 AM
To: WSBA Probate & Trust Listserv <wsbapt at lists.wsbarppt.com <mailto:wsbapt at lists.wsbarppt.com> >
Subject: Re: [WSBAPT] Creditor claim on debt not due

I think the analysis is very different if it’s secured vs. unsecured, yes. If secured, they get to execute on their asset unless other arrangements are negotiated. “Usually” the asset would be liquidated and they’d get payoff. If they have a remaining balance, it’s an unsecured claim in the proceeding, I think?

For unsecureds, my take is this:

If the estate is clearly solvent (considering the gross balance due without time value of money and all that “yet”), what would the practical problem be? I would guess that you would tender payment (unless the discount for time value truly warrants spending lawyer/PR/CPA fees to negotiate to obtain that discount) OR propose a “back of napkin” discounted payoff “just to see” if they accept OR (if practical) ask the relevant beneficiaries if any of them is willing to take the obligation in return for a greater cash distribution so that he or she can gain the benefit of the time value of money, and then tell the creditor “either accept payoff now, or we’re assigning this to so and so beneficiary, and you can sue us if you dislike it.” (I would actually omit that last bit and perhaps just seek court approval with notice to the creditor. But you get the point. 😉)

If the estate is insolvent, then it’s a different ballgame. The debt probably “must” be valued at its current net present value (so as not to dilute other creditors who could argue that its gross balance isn’t as relevant in an insolvency). And then the creditor participates at the % everyone else does, and the debt is extinguished upon payoff. Notice it up, let them all “speak now or forever hold their peace,” get your order, and voila!

Now, maybe I’ve missed something, but I think the key is having in your back pocket that there is no reason that the debt cannot be “distributed” (assigned) to a devisee/heir in return for a NPV chunk of cash if the creditor is happy to continue receiving payment over time (such as if they do NOT want payoff in one tax year for tax purposes and so are willing to take the risk on said beneficiary assuming the risk). There would be details to work out, promissory notes to sign, but it could be done. I think?

Fun little problem! Happy Friday! Best, Josh 

From: wsbapt-bounces at lists.wsbarppt.com <mailto:wsbapt-bounces at lists.wsbarppt.com>  <wsbapt-bounces at lists.wsbarppt.com <mailto:wsbapt-bounces at lists.wsbarppt.com> > On Behalf Of Mike Zeno
Sent: Thursday, January 5, 2023 5:13 PM
To: WSBA Probate & Trust Listserv <wsbapt at lists.wsbarppt.com <mailto:wsbapt at lists.wsbarppt.com> >
Subject: Re: [WSBAPT] Creditor claim on debt not due

Some random thoughts:

Immediate reaction:  It would be sensible to treat it as a current claim for the present value of the debt—with an inevitable argument over the appropriate discount rate.

I would expect there to be case law on this in some states, since it’s not an unusual scenario.

If you’re dealing with the Laserpro documents that many banks use, there’s probably an automatic acceleration.

Not sure of the effect of the federal limitations on due-on-“sale” clauses

Mike

The Law Office of G. Michael Zeno, Jr., P.S.

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From: wsbapt-bounces at lists.wsbarppt.com <mailto:wsbapt-bounces at lists.wsbarppt.com>  <wsbapt-bounces at lists.wsbarppt.com <mailto:wsbapt-bounces at lists.wsbarppt.com> > On Behalf Of Eric Nelsen
Sent: Thursday, January 5, 2023 3:40 PM
To: WSBA Probate & Trust Listserv <wsbapt at lists.wsbarppt.com <mailto:wsbapt at lists.wsbarppt.com> >
Subject: [WSBAPT] Creditor claim on debt not due

Conceptual problem and I’m interested in everyone’s thoughts on this. The creditor claim process specifically includes debts owed by the decedent that are “not yet due.” RCW 11.40.070(1)(e) <https://app.leg.wa.gov/RCW/default.aspx?cite=11.40&full=true#11.40.070> .

Say the decedent dies in 2023 owing $50,000 that is due in monthly installments over the next ten years.

How does the PR get this handled and the estate closed in a timely fashion?

Does the answer change depending on whether the debt is secured or unsecured? Assume an intestate estate so RCW 11.12.070 <https://app.leg.wa.gov/RCW/default.aspx?cite=11.12.070>  doesn’t apply.

Sincerely,

Eric

Eric C. Nelsen

Sayre Law Offices, PLLC

1417 31st Ave South

Seattle WA 98144-3909

206-625-0092

eric at sayrelawoffices.com <mailto:eric at sayrelawoffices.com> 

Covid-19 Update - All attorneys are working remotely during regular business hours and are available via email and by phone. Videoconferencing also is available. Signing of estate planning documents can be completed and will be handled on a case-by-case basis. Please direct mail and deliveries to the Seattle office.

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