Borrowing money demands making informed financial decisions as it involves liability. However, if a borrower unexpectedly passes away, the fate of the debt may be unclear to many. How do banks and legislation address such situations?
What happens in the repayment of the loan?
When issuing loans, lending institutions typically require the borrower to provide collateral or a reliable guarantor. If the borrower passes away, the first step is to utilize the loan security.
- If the loan is insured, the debt will be paid off through the insurance policy.
- If a guarantor is involved, the obligation to repay the debt falls on the guarantor.
What happens if the security is insufficient?
If there is no insurance or guarantor, or if they are not sufficient, the debt does not simply disappear. In this case, the responsibility for repaying the debt transitions to the heirs.
The liability of heirs
Under the law, the concept of "inheritance" does not only include assets such as housing or vehicles. The inheritance also encompasses the deceased's obligations to creditors. Heirs are responsible for the debt, but only up to the value of the inherited assets they receive.
If there are multiple heirs, they share joint liability as co-debtors, meaning each heir is obligated to repay the debt to the extent of their share of the inheritance.
Conclusion: Loans and inheritance
In conclusion, if a borrower passes away and the loan security is insufficient, the obligation to repay the loan is transferred to the heirs, who are responsible up to the value of the inherited assets. At the same time, if the loan is insured or a guarantor exists, the repayment is handled by these parties.
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