What Is a Notice to Creditors?

A notice to creditors is sent to businesses and individuals to alert them that one of the people or companies they’re doing business with has filed for bankruptcy; an identically-titled notice is also sent to those doing business with someone who has died. The purpose of the notice is to permit creditors to settle accounts and recover any amounts due. In the case of bankruptcy, the filer includes a list of all creditors and debtors in the filing with the court. Each of these is sent a notice. In the case of death, the executor of the will is responsible for alerting the decedent’s creditors and debtors so that they can file final claims against the estate or make arrangements for payment of outstanding amounts due.

Whether for bankruptcy or death, much of the information contained in a notice to creditors is the same, such as the name and address of the bankruptcy filer or the decedent, the procedure for filing a claim, and the deadlines for doing so. The name and address of the party to whom such claims should be sent is also noted, whether a bankruptcy trustee or estate executor. A notice to creditors also provides the name and address of the court of the bankruptcy or probate filing. The bankruptcy notice to creditors will also include information relative to the creditors' meeting.

When a bankruptcy is filed, creditors must cease all collection activities against the filer upon receipt of the notice. Creditors may file claims against their customers who file bankruptcy, but these claims must be filed in the same court where the bankruptcy was filed, regardless of where the creditor is located. Each bankruptcy filing also usually generates a meeting at which creditors may directly present their claims against the debtor.

When a person dies, the executor conducts a thorough examination of correspondence and financial records to determine which creditors and debtors might exist. Examples of common creditors might be utility companies, credit card companies and other merchants. In addition to sending a notice to each such business or individual, the executor generally publishes a notice to creditors in area newspapers.

The published notice to creditors must appear for a certain number of consecutive newspaper issues, with the exact number set by statute. Likewise, there are statutory limits set for how long after the death a creditor may successfully file a claim against the estate of a decedent. Executors are limited in the extent to which they may distribute the proceeds and effects of an estate by these same statutory limits.

In some jurisdictions an estate’s executor has the option of not sending notices to creditors. When this option is available and selected, the statutory time limit for filing claims against the estate is usually fairly long, often two years or more. Thus, when the executor elects not to send notices to creditors, the decedent’s estate will be secured for that statutory period of time before it can be distributed to beneficiaries. Those jurisdictions usually try to encourage the use of notices to creditors by allowing the distribution of the estate much more quickly when notices to creditors are sent out.

In both bankruptcy and death, there’s the possibility that those responsible — the bankruptcy filer or the estate’s executor — will fail to properly notify all creditors. The court usually finds out that this has happened when an overlooked creditor files a claim. At that point, the court will ascertain whether or not the failure to send the notice occurred in good faith or was negligent; a finding of negligence can carry severe penalties.