Creditor Claims and Paying Debts of an Estate

When a loved one passes away, the last thing that might be on your mind when you are grieving is paying any creditor claims against their estate. But before a decedent’s assets can be distributed to beneficiaries, any outstanding debts must be resolved — and creditor claims must be paid. Importantly, there are certain legal procedures in Michigan that must be followed when it comes to notifying creditors and paying the debts of an estate.

How to Notify Creditors That Your Loved One Has Passed

Notifying known and unknown creditors is the first step that must be taken to settle a decedent’s debts during the Michigan probate process. Since it isn’t always possible to have knowledge of each creditor and every debt that needs to be settled, the law requires the personal representative of an estate to publish notice in a legal newspaper. Publication is considered sufficient to notify unknown creditors, provided the requirements of the Michigan Estates and Protected Individuals Code are met.

The notice must include certain information, including the following:

  • The decedent’s name, date of birth, and date of death;

  • The last known address of the decedent;

  • The name and address of the estate’s personal representative;

  • The name and address of the court where probate is taking place; and

  • A statement that the creditor’s claim will be barred unless it is presented to the court or personal representative within four months of publication.

If a creditor is known, they must be served with a copy of the published notice or a similar writing. Michigan law imposes strict timelines to provide notice to a known creditor of an estate. Specifically, notice must be given within four months from the date the notice to creditors was published. However, if the personal representative first learns of a creditor less than 28 days before the end of the four-month period, they have 28 days to give notice.

As long as the notice is published and the procedural criteria are satisfied, it doesn’t matter whether an unknown creditor actually saw it. They would still be barred from pursuing a claim if they did not file before the applicable deadline.

When is Notice to Creditors Not Required?

There are certain situations in which notice to creditors may not be legally required. Under Michigan law, notice does not need to be given to creditors in the event the estate has no assets, or it is administered in accordance with the summary distribution for small estates. Notice is also not necessary if the decedent had been dead for three or more years.

In addition, notice is not needed if the creditor claims have already been paid or in cases where notice was previously given. While a personal representative cannot be held personally liable if they have the good faith belief that notice was not required, the decedent’s estate can be held liable.

What Happens When a Claim is Filed Against an Estate?

If a creditor files a claim against an estate before the deadline to do so (four months from the date notice was published), the personal representative may allow or disallow it. Notice of the personal representative’s decision can be delivered or mailed to the claimant. If the personal representative changes their decision regarding the claim, the creditor must also be notified. However, a decision disallowing a claim may not be changed once the time frame to commence a proceeding has expired and the claim is barred.

If a personal representative does not act on a claim that was presented to them, it will automatically be allowed 63 days after the time frame for the original presentation of the claim ends — or 63 days after the court appoints the personal representative (whichever event comes later).

A civil action may be filed by a creditor after being provided with notice that their claim was disallowed. Such matters are heard in probate court and can be initiated by filing a complaint. They proceed in the same way as any other type of lawsuit until the outcome is determined by the probate judge. It is the personal representative’s responsibility to inform any interested parties that a contested matter has been commenced and they may file a petition to intervene. Unless a party intervenes in the lawsuit, they will be bound by the court’s decision.

Priority of Claims

Creditor claims must be paid before beneficiaries or heirs can receive their portion of the estate. But in some cases, there may be insufficient assets to pay all the debts owed by an estate. Michigan law sets forth the order in which claims must be satisfied if all charges cannot be paid. Debts of an estate must be satisfied in the following order:

1. Expenses associated with the administration of the estate

2. The decedent’s funeral and burial expenses

3. Homestead allowance

4. Family allowance

5. Exempt property allowance

6. Debts and taxes under federal law

7. Medical and hospital expenses associated with the decedent’s final illness

8. Debts and taxes under Michigan law

9. Any other claims

Priority cannot be given within a class of claims. For example, if there are two medical bills that must be paid, they must be given the same preference. Additionally, a claim that is due is not entitled to preference over a claim that has not yet become due.

If there aren’t sufficient assets to pay each claim in full — or satisfy the homestead allowance, family allowance, and exempt property — the personal representative must certify the nature and amount of the deficiency to the trustee of any revocable trust the defendant had at the time of their death. Such deficiency may be paid from the trust. The deficiency may also be collected from non-probate transfers of which the personal representative is aware, which may be liable for allowance.

Contact an Experienced Michigan Probate Attorney

Handling creditor claims can be time consuming and complex. It’s important to have the guidance of a skilled attorney who can help you navigate the process. The knowledgeable estate and probateattorneys at Barron, Rosenberg, Mayoras & Mayoras can help ensure the probate process goes smoothly and you fulfill any necessary obligations. Schedule a consultation today by calling (248) 213-9514 in Michigan or (941) 222-2199 in Florida to learn how we can assist you. You can also use our simple online contact form.
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