As many of us go through life, we will acquire and pay debt. For most, having a car loan or home mortgage is the product of secured debt which allows the debtor to use the asset while paying a lender. It is also common for people to have unsecured debt such as a credit card or medical bill obligation which allows someone to receive services or buy things on credit in exchange for the promise to repay. However, who pays these debts when the person who owes them dies?
Unsecured Debt
Unsecured debts such as credit card, medical bills, and personal loans that were only owed by the person who died cannot become the obligation of the person’s surviving family members. Under Michigan law, the only way another person could be responsible for those debts would be if they were jointly named on the account or co-signed on the debt. Otherwise, the deceased person is the only person who creditors can pursue for payment.
Secured Debt
When a loved one dies with a balance on their secured debt such as mortgage or car, these debts need to be entirely repaid. Otherwise, the lender can exercise their right to repossess the asset. Just as with unsecured debt, outside of being a co-signor on the loan for the asset, family members will not be liable. However, the estate of their loved one will have to be used to pay their loved one’s creditors. Further, if it turns out that there is not enough left in the estate to repay the debt, family members, and other beneficiaries may have return their inheritances if they are needed to pay the creditor.
Creditor Actions
When a person dies with a will, they usually name a personal representative who will be responsible for administering their estate. Otherwise, the court will appoint someone to fulfill this role. The personal representative will be tasked with conducting an inventory of the deceased person’s assets and debts. They will also have to also notify creditors that the estate is going through probate. This way a creditor seeking repayment from a person who died can make a claim against their estate. In order to make such a claim, the creditor must take specific steps. However, if the estate does not have enough assets to repay the debt, the creditor may not be able to be compensated. Additionally, the law limits the time a creditor has to make a claim against an estate. Further, the law also dictates that debts be satisfied in a specific order. If a creditor holds the type of debt obligation which is lower in priority and the estate does not have sufficient funds to pay all of its creditors, the creditor may walk away having been paid some or even none of the debt they are owed.
The repayment of debt after a loved one dies can be complicated. We have experience helping families navigate estate administration and can help. Please contact us online or by phone if we may be of other assistance.