How to Collect on a Promissory Note After the Borrower’s Death

If you’ve lent money to someone through a promissory note, you might be wondering what happens if the borrower passes away before repaying the debt. Can you still collect the owed money? The short answer is yes, but the process can be more complicated than usual.?

In this blog post, we’ll explain how you can collect on a promissory note after the borrower’s death, covering the legal steps involved, your options for recovery, and how an experienced attorney can help you through the process.

What Is a Promissory Note?

Before we dive into the steps for collecting on a promissory note after death, let's clarify what a promissory note is. A promissory note is a legal document that formalizes a loan agreement between the lender and the borrower. It includes the terms of the loan, including:

• The loan amount
• The interest rate
• The repayment schedule
• The borrower’s promise to pay

Promissory notes can be used for personal loans, business loans, and even mortgages. They are legally binding contracts that offer a clear path for enforcement, even after the borrower’s death.

Does the Borrower’s Death End the Debt?

Many people assume that when the borrower dies, the debt disappears. Unfortunately, that's not the case. Debts typically do not dissolve upon the death of the borrower. Instead, the debt becomes part of the deceased person’s estate.

An estate is a legal entity that is responsible for managing the deceased person’s financial affairs, including paying off any outstanding debts. The estate is administered by a personal representative, which could be a family member, a trusted friend, or a professional fiduciary, such as an attorney or accountant.

Step 1: Locate the Deceased Borrower’s Estate

The first thing you need to do is locate the borrower’s estate. If you don’t know who the personal representative is, you can check the probate court’s records in the county where the borrower lived.

In Florida, a probate process is required to distribute the assets of the deceased person. If the borrower had a will, the probate court will generally appoint the individual named in the will to serve as the personal representative. If there was no will, the court will appoint a representative according to state laws.

Step 2: File a Claim Against the Estate

Once you locate the estate, you’ll need to file a claim for the money owed to you. Here’s what you should know:

• Notify the Personal Representative: The personal representative is responsible for paying off debts and distributing assets according to the will (or state law, if there is no will). Contact the representative and notify them of your promissory note and the amount owed.
• File Your Claim: In Florida, creditors must file a claim with the probate court within a specific time frame (usually 3 months from the date of the Letters of Administration, which is the official notice the court sends when the personal representative is appointed). Be sure to file your claim promptly to avoid losing your right to collect.
• Provide Documentation: To support your claim, you’ll need to present proof of the promissory note and any related documentation. This may include the signed note itself, records of payments made, or any correspondence with the borrower.

Step 3: Wait for the Estate’s Assets to Be Distributed

After you’ve filed your claim, the personal representative will assess all debts and determine how to distribute the estate’s assets. The estate may need to sell assets, such as property or investments, to pay off outstanding debts.

• Priority of Debt Payments: It’s important to note that not all debts are treated equally. In general, debts such as funeral expenses, taxes, and secured loans are given priority. If there are insufficient assets in the estate to pay all debts, you may only receive a portion of what you’re owed.
• Unsecured vs. Secured Debt: If your promissory note is secured (meaning it’s backed by collateral like property or assets), you may have a better chance of recovering your full payment. However, if the note is unsecured, the amount you can recover may depend on the estate’s remaining assets after priority debts are paid.

Step 4: What Happens if the Estate Cannot Pay the Debt?

In some cases, the estate may not have enough assets to cover all of its debts, including yours. If this happens, you may be out of luck, depending on the type of debt you are owed and the estate’s situation.

• Estate Insolvency: If the estate is insolvent (meaning it doesn’t have enough assets to cover its liabilities), creditors may have to share the estate’s remaining assets proportionally. You may only recover a fraction of what you’re owed or nothing at all if there are higher-priority debts.
• Personal Liability of the Borrower’s Heirs: Generally, heirs are not personally responsible for the deceased person’s debts unless they co-signed the promissory note or are otherwise legally liable. This means you typically cannot go after the borrower’s family members to collect the debt.

Step 5: Consider Legal Action

If you’re unable to recover the debt through the probate process, you may need to consider legal action. This could include filing a lawsuit against the estate or its representative. Our experienced attorneys can help you determine whether this is a viable option based on the specifics of your case.

Should You Work with an Attorney?

Navigating the process of collecting on a promissory note after the borrower’s death can be challenging, especially when dealing with the probate process. Working with an experienced debt recovery attorney can help ensure that you follow the correct steps and protect your rights.

A lawyer can help you:

• Understand your legal options
• File the claim on your behalf
• Handle negotiations with the estate’s personal representative
• Pursue additional legal actions if necessary

Conclusion: Protect Your Debt and Take Action

Lending money through a promissory note is an important step in many business and personal relationships. However, when a borrower passes away, it can complicate matters and create uncertainty about how to collect the debt. By following the appropriate legal steps and working with a trusted attorney, you can increase your chances of recovering the money you’re owed.

If you need help with collecting on a promissory note after the borrower’s death, contact one of our attorneys at 305-570-2208. You can also email our attorney Eduardo A. Maura directly at [email protected].

We at Ayala Law PA are passionate about helping those in legal need, so please don’t hesitate to schedule a case evaluation with us online here.

[The opinions in this blog are not intended to be legal advice. You should consult with an attorney about the particulars of your case].