Creditor Claims in a Probate Estate: Do They Have to Be Paid?

Probate estate administration can be a complicated and stressful process, especially when creditors come into play. Michigan, like many other states, has laws governing creditor claims in probate estates. In this post, the experienced probate attorneys of Thompson Legal explain creditor claims in Michigan probate estates and explore whether these claims are required to be paid, referencing relevant statutes such as MCL 700.3801, MCL 700.3806, and MCL 700.3805.

Please note that this post is not exhaustive, and every situation is unique. In the event that you have questions about creditor claims or your specific case, it’s advisable to speak with an attorney. Contact Thompson Legal to schedule a discovery call with a Michigan probate attorney.

Creditor Claims in Michigan Probate Estates

Notice to Creditors

One of the most important steps in probate administration is publishing notice to creditors. MCL 700.3801 requires the personal representative of the estate to promptly publish a notice to creditors upon appointment. This notice typically appears in a local legal news and serves as an invitation to all potential creditors to submit their claims against the estate.

Presentation of Claims

Under MCL 700.3806, creditors are provided with a specific window of time to present their claims. In Michigan, this window is generally four months from the date of the first publication of the notice to creditors. If a creditor fails to file their claim within this timeframe, their claim may be barred - meaning they may lose their right to collect from the estate. Note that there are exceptions in cases in which creditors are known.

Payment of Claims

The question of whether a creditor claim is required to be paid in a Michigan probate estate often revolves around the assets available in the estate and the priority of claims. MCL 700.3805 lays out the order in which claims are to be paid:

a. Administration Expenses: These are paid first, including court costs, attorney fees, and other expenses related to the probate process.

b. Funeral and Burial Expenses: Next in line are the costs associated with the deceased's funeral and burial.

c. Debts and Taxes: Certain federal claims may have priority over other claims.

d. Family and spousal support claims: Claims for family and spousal support are usually given priority.

e. All other claims: Finally, general creditor claims are paid in order of presentation, with those who filed first receiving payment before subsequent creditors.

Are Creditor Claims Required to Be Paid?

Now, the pivotal question: are creditor claims in a Michigan probate estate required to be paid?

The answer is, it depends.

The personal representative of the estate is responsible for reviewing the validity of creditor claims and determining whether they should be paid. If the estate lacks sufficient assets to cover all claims, the personal representative must make difficult decisions regarding which claims to pay and in what order, following the priority outlined in MCL 700.3805. Unless the claim is barred, a personal representative is required to pay claims allowed against the estate pursuant to MCL 700.3807. It's essential to note that not all claims will necessarily be paid in full. If the estate's assets are insufficient to satisfy all claims, creditors with higher priority claims will be paid first, and those with lower priority claims may receive nothing or only a portion of their claim.

Given this-it is always advisable to wait to pay any claims until after the expiration of the creditor period. Failure to pay claims could subject a personal representative to personal liability.

Conclusion

Handling creditor claims in a Michigan probate estate can be overwhelming and require personal representatives to make difficult decisions regarding claims. It is advisable that personal representatives work with legal counsel to ensure that the estate's assets are distributed in accordance with the law. If you are involved in a Michigan probate estate and have questions about creditor claims, contact Thompson Legal to schedule a discovery call with an experienced Michigan probate lawyer. 

This blog is for informational purposes only. It is not intended as legal advice. In the event you would like to speak with a probate lawyer about your case Contact Us at (734) 743-1646 to schedule a consultation.