What Happens to Unpaid Debts When You Die?
Whether you’re planning your estate or grappling with the recent loss of your loved one, you might be wondering what happens to the debt left behind by a decedent. Before the decedent’s estate is distributed to the beneficiaries, outstanding debts must be resolved and all creditor claims paid.
Michigan probate laws outline various legal procedures that the estate’s representative or administrator must follow in notifying creditors and paying the outstanding debts. Skilled Bloomfield Hills business and estate planning lawyers provide an overview of how to handle a decedent’s debts.
What Determines Whether Heirs Inherit a Decedent’s Debt?
Probate attorneys in Bloomfield Hills say that debt inheritance often depends on the type of estate debt involved. Beneficiaries can potentially take on the responsibility of paying off debt based on the following categories:
Debts with attached collateral, such as home mortgages or car loans, are tied to the respective home and vehicle. If you die while you still have unpaid secured debt, the lender can seize the collateral and sell it to pay the outstanding debt.
However, sometimes, the money collected from the sale cannot satisfy the debt entirely. If a co-signor exists, the lender can go after the joint debt holder for the balance. In cases where the debt doesn’t have a co-signor, the lender can try to demand payment from the heirs, and a skilled probate attorney should be immediately hired if this occurs..
Unsecured debt includes personal loans, credit card balances, medical bills, and other financial obligations not secured by a tangible asset. Under Michigan law, beneficiaries are not responsible for paying unsecured left behind by their loved ones. The only exception is if the beneficiary is a joint account holder of the unsecured loan.
Debt collectors can try to come after heirs for their loved one’s unsecured debt even when the heir has no actual legal responsibility for the debt. If you’re in such a situation, avoid making any commitments or important decisions while still grieving your loved one. Instead, talk to seasoned probate lawyers in Bloomfield Hills for legal advice on your legal rights and obligations before dealing with any estate debts or expenses.
Can a Creditor Make a Claim on an Estate After a Decedent’s Death?
According to Michigan law 700-3803, most creditors have a four-month time limit from the day the Notice to Creditors is published in probate to sue for payment of an unpaid bill. The probate court determines the priority of debts and which should be paid first, such as funeral and burial expenses, medical bills, and estate administration costs. Other financial obligations that are given priority are:
- Family allowance
- Exempt property allowance
- Debts and taxes under federal law
- Any other claims
Once debts are paid from an estate, the heirs divide among themselves the remaining assets. Even if they’re not obligated to pay a debt from their assets, they receive a small inheritance portion if the estate pays the debt.
Heirs may only receive something if the estate has enough assets to pay outstanding debt. However, retirement accounts, and life insurance policies are exempted from creditor claims.
How Do Creditors Know About a Debtor’s Death?
The estate’s representative is usually under oath to fully administer the estate by paying, settling, or disposing of all presented creditor claims, taxes, and estate administration expenses. They can find out about the outstanding debt by requesting a copy of the credit report from bureaus in Michigan.
Then, the representative must publish a Notice to Creditors informing them of an estate owner’s death. Working with skilled probate lawyers in Bloomfield Hills can help ensure the notice is issued correctly and within the required time limits.
Notice to Creditors Publication
The estate representative publishes a death notice in the local newspaper where the decedent lived. The message properly notifies creditors, provided it meets the Michigan Estates and Protected Individuals Code requirements. The notice must contain the following information:
- The name, date of birth, and date of death of the decedent
- The decedent’s last known address
- The name and address of the estate’s personal representative
- The name and location of the probate court where the proceedings are happening
- A disclaimer that bars creditors’ claims if they don’t present them to the court or personal representative within four months of the notice publication
Where the creditors are known, they must be issued with a copy of the published notice within four months from the date it was published. Once the notice is posted, it doesn’t matter if unknown creditors see it. They can’t pursue a claim if they don’t file it within the deadline assuming the notice is done and published correctly.
Are There Exceptions to the Notice Publication?
Under Michigan law, there are exceptions to the Notice of Death Publication. For example, publishing the notice is unnecessary if the estate has no assets or is administered according to the summary distribution for small estates. The notice is also unnecessary if the creditor claims have already been paid or a notice had previously been given.
Prevent Your Heirs from Inheriting Your Debt with the Help of Skilled Probate Lawyers
If you’re concerned about what will happen to your debts after you die, it’s time to create an estate plan that protects your heirs from creditor claims. Experienced Bloomfield Hills business and estate planning lawyers can assess your estate assets and help you determine the most suitable estate planning tool to preserve your assets and reduce tax and financial burdens.
On the other hand, if you’re grieving the loss of a loved one who left substantial debt behind, the probate attorneys at Kendal Law Group can deal with the creditors and represent you through the probate system while you navigate this challenging time. Call us at 248-609-1718 to schedule a FREE consultation.