When a loved one dies, it is a difficult time for the family, both emotionally and financially. The relatives may wonder who is responsible for the debts of the deceased. The estate must pay his debts. A spouse may be liable for some debts, such as joint credit accounts. However, according to the Fair Debt Collection Practices Act, a creditor may not collect the deceased's individual debts from his relatives.
Secured Loans
Generally, the deceased person's estate is responsible for paying his debts, including the car loan. If it doesn't have enough money, the loan will go into default. The creditor may repossess the collateral if the loan remains unpaid. You may continue to pay the loan. However, if the value of the collateral is less than the loan balance, you may let the creditor take it. Also, you should check the loan documentation to see if the deceased has purchased loan insurance. Credit life insurance pays the balance off if the borrower dies during the term of the loan.
Legal Responsibility
If you are a co-signer on a car loan, the creditor may require you to make payments if the second borrower dies. Also, you may be legally responsible for paying some debts if you reside in a community property state. Community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. An estate attorney will determine which debts you are liable for. If you must repay debts, you may negotiate with the creditors. Some creditors may be willing to settle debts with the surviving relatives who have limited income and assets.
Refinancing the Loan
If you inherit the car from the deceased, you will receive it during the probate process. However, the process does not eliminate the loan unless the estate pays it off. You may have to pay off the loan or assume it if a bank allows it. Since the borrower is deceased, most banks will require a payment in full. If you can't assume the loan payments, you will need to apply for a car loan and change the title of the vehicle to be in your name.
Other Heirs
All assets must be divided equally between all heirs. Co-owners of assets will receive equal rights to the property. If an heir is a co-signer on the car loan, he is entitled to receive the car and should continue to make payments on it. If he doesn't want to keep it, you may buy it from him. If the deceased was the only owner of the vehicle, the probate court will decide who gets it during the process.
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