People accrue debt for many reasons. Some people might take loans to pay for necessities such as housing, whereas others do so to cover the high costs of health care and other medical expenses. Debts are notorious for being extremely difficult to pay off, and it is reasonable to fear the possibility that your family might inherit yours after you pass away. With this in mind, it is important to know what happens to your debt, especially if there is a risk that your family and heirs might inherit it.
Do debts disappear when you die?
When you die, your debts do not go away. Instead, the executor you appoint will pay off your debt using your estate, which refers to the collective value of your properties and bank accounts. Michigan has a specific priority order when it comes to paying your debts posthumously:
- Administration expenses, such as court costs and attorney fees
- Funeral expenses
- Allowance for your remaining family members
- Federal debts
- Last illness expenses
- State priority debts
- All other debts, including credit card debts and personal loans
If your estate is insufficient and cannot pay off the entire debt, what remains typically goes unpaid. Under most circumstances, your family will not inherit your debt. However, there are exceptions to this.
When are heirs responsible for your debts?
Heirs do not automatically inherit debt, and debt collectors cannot demand payment from your family if you die. In Michigan, heirs are not generally responsible for paying your debts. However, there are some exceptions where your heirs can become responsible, namely if:
There is joint debt: Joint credit cards, mortgages and loans with your heir
The debt is co-signed: Loans and leases signed by you and a co-signer, who may be your heir
It is also worth mentioning that spouses do not inherit the debt by default. This is because Michigan is not a community property state. While the court divides property fairly in matters such as divorce, debts tend to remain with the deceased, save for the rare exceptions listed above.
What are Michigan’s probate and creditor claim procedures?
After your death, it is the responsibility of your executor or administrator to identify your assets as well as your debts by examining credit reports and account statements.
From here, they must notify your creditors, the people and organizations you owe money to, and allow them to file claims. They must also notify public newspapers to let them publish notices to creditors.
Typically, creditors have four months to file claims after the newspaper publishes the notice. However, those directly informed only have one month. A creditor who does not file a claim before these deadlines loses their ability to do so.
Protecting your heirs from debt
One of the best ways to protect your heirs from debt is proper estate planning. By creating a trust and jointly owning property with rights of survivorship, you can protect your assets and increase the likelihood of your estate being inherited free of debt to your spouse, children or relatives. By protecting your heirs, you can rest easily knowing that your successors will not be burdened with your debts.