Short Answer

Yes. In North Carolina, a personal representative may negotiate and settle creditor claims, including an SBA debt, but must follow the state’s claims‑priority rules and protect all interested parties. When the estate is illiquid, you can sell assets, borrow against estate property, or seek a court‑approved sale of real estate to fund a settlement. Court approval is advisable if the claim is disputed, contingent, or the estate is insolvent.

Understanding the Problem

You are asking whether, in North Carolina, the personal representative can settle an SBA claim against the estate when most assets are tied up and hard to sell. The key decision is whether and how you can compromise the SBA’s demand while meeting your duties to creditors and beneficiaries. One important detail: the estate includes a stake in a small closely held company.

Apply the Law

Under North Carolina law, the personal representative (PR) manages and settles the estate, which includes evaluating, allowing, rejecting, and compromising creditor claims. The PR must pay claims in the statutory order, treat creditors within the same class equally, and avoid premature or preferential payments. The Clerk of Superior Court has oversight of estate administration, and the PR often needs the Clerk’s approval to sell real estate to create liquidity or to resolve certain contingent claims. The PR should publish and mail notice to creditors; claims are generally due at least 90 days after first publication.

Key Requirements

• Authority to settle: The PR may compromise and settle claims for or against the estate when prudent and in the estate’s best interests.
• Respect claim priority: Administrative costs come first; federal claims (like an SBA debt) are paid in their statutory class without preferring one creditor over another within the same class.
• Create liquidity lawfully: The PR may sell personal property, petition to sell or mortgage real property, or borrow/advance funds to pay approved claims.
• Creditor notice and timing: Publish and mail notice to known creditors; do not finalize distributions or settlements until the claims window closes and priorities are determined.
• Court oversight when needed: Seek Clerk approval for sales of real property and for compromises of contingent/unliquidated claims or instruction when the estate is insolvent.
• Tax coordination: Debt forgiveness can trigger taxable income; coordinate the timing and terms of any settlement with tax reporting.

What the Statutes Say

• North Carolina Gen. Stat. § 28A-13-3 (Powers of personal representative) – Includes power to compromise/settle claims, borrow, advance funds, and sell assets.
• North Carolina Gen. Stat. § 28A-19-6 (Order of payment of claims) – Sets the priority classes and prohibits preference within a class.
• North Carolina Gen. Stat. § 28A-14-1 (Notice to creditors) – Requires publication and mailing to known creditors; starts the claims period.
• North Carolina Gen. Stat. § 28A-17-1 (Application to sell real property to pay debts) – Authorizes a special proceeding to sell, lease, or mortgage real estate to create assets for payment of claims.

Analysis

Apply the Rule to the Facts: Because the PR may settle claims, you can negotiate an SBA compromise if it fits the estate’s best interests and claim priorities. The SBA debt is a federal claim; treat it in the correct priority class and avoid preferring it over equal‑class creditors. With most value in a closely held company, consider selling personal property, petitioning to sell or mortgage real estate, or borrowing/advancing funds to fund the settlement while preserving business value.

Process & Timing

1. Who files: Personal representative. Where: Clerk of Superior Court (Estates Division) in the North Carolina county of administration. What: Publish and mail the Notice to Creditors and file the Affidavit of Publication; if needed, file a special proceeding to sell/mortgage real property to pay debts; submit any settlement for approval if the claim is contingent or the estate is insolvent. When: Publish promptly after qualification; creditors have at least 90 days from first publication to present claims.
2. Evaluate solvency and priorities once the claims window closes; negotiate with the SBA and document any compromise consistent with the payment order. If real property must be sold, the Clerk will set the process and, if a private sale is requested, may authorize it upon satisfactory proof.
3. Pay approved claims in priority order, pro rata within any class as required; then file the final account for audit and close the estate.

Exceptions & Pitfalls

• Do not prefer one creditor over another within the same class; if the estate is insolvent, pay pro rata within the class.
• Skipping or delaying mailed notice to a known creditor (like the SBA) can extend exposure; mail notice and keep proof.
• Contingent or unliquidated claims may require Clerk approval of a compromise; document the present‑value basis.
• Selling real property to create liquidity requires a special proceeding; confirm bond adequacy before receiving sale proceeds.
• Debt forgiveness can cause taxable cancellation‑of‑debt income; coordinate timing and forms (e.g., any 1099) with tax counsel.
• Continuing a closely held business is permitted only as reasonably necessary to preserve value; avoid undue risk or delay.

Talk to a Probate Attorney

If you’re dealing with an SBA demand against an illiquid estate, our firm has experienced attorneys who can help you understand your options and timelines. Call us today at [919-341-7055].

Disclaimer: This article provides general information about North Carolina law based on the single question stated above. It is not legal advice for your specific situation and does not create an attorney-client relationship. Laws, procedures, and local practice can change and may vary by county. If you have a deadline, act promptly and speak with a licensed North Carolina attorney.