Who pays the loan after the borrower's death

What happens to a loan in the event of the primary borrower's death

A situation such as the death of the primary borrower is necessarily included in the text of the loan agreement. Financial institutions insure themselves in every possible way against potential loan defaults, so the debt does not disappear even after the borrower's passing. Accordingly, what happens to the debt in such a case depends precisely on the terms of the agreement.

The following options are possible:

1. Obligations to the bank pass to the guarantor. This applies if a guarantor exists at all.
2. The co-borrower pays the loan.
3. The debt to the bank is fully covered by the insurance company. This applies only if, first, the event is covered by insurance, and second, the borrower actually took out an insurance policy.
4. Relatives of the debtor fully inherit the loan.
5. In the absence of guarantors, co-borrowers, and heirs, the bank may foreclose on the debtor's property through court to repay the loan.

Who pays the loan after the borrower's death

As we mentioned, the bank will receive the money for the issued loan in any case. The only difference is who exactly will pay off the debt. Let us examine each option in detail.

Guarantor

According to Article 367 of the Civil Code of the Russian Federation, the death of the primary debtor is not grounds for terminating the guarantee. That is, even in such a case, the guarantor must fulfill their obligations to the creditor. According to the loan agreement, they are obligated to pay the principal debt, interest for the use of the money, fines, and penalties.

What if the borrower has heirs? There are two possible scenarios:

1. Close relatives of the debtor refused to accept the inheritance. In this case, after paying off the debt, the guarantor can claim the borrower's share of the property.
2. If relatives inherited the borrower's property. Even in this case, the guarantor is obligated to fulfill obligations to the creditor. But then, through the courts, they can demand that the heirs compensate their expenses.

Co-borrower

In the case of a co-borrower, everything is much simpler. The joint borrower has a share in the loan property. Therefore, in the event of the primary debtor's death, regardless of the presence or absence of heirs, they are obligated to close the debt to the creditor.

Insurance company

According to Federal Law No. 353-FZ "On Consumer Credit (Loan)" dated December 21, 2013, the creditor does not have the right to insist on borrower life insurance. However, having insurance often makes the loan terms more attractive than without it. For example, to maintain the preferential mortgage rate, the borrower is required to renew the insurance policy every year. Without it, the interest rate will be standard.

The insurance contract necessarily contains a clause regarding the death of the insured person, i.e., the borrower. We advise you to read it carefully, as it specifies the insured events under which the insurance company assumes the obligation to repay the loan.

For example, the following causes of a debtor's death are often not considered insured events:

• death while participating in extreme sports;
• death in war;
• suicide;
• death from a chronic illness;
• death while serving a prison sentence.

Heirs

According to Article 1175 of the Civil Code of the Russian Federation, "Liability of heirs for the debts of the testator," close relatives of the debtor bear joint and several liability in the event of their death. This requirement applies to absolutely all heirs, regardless of their financial standing, status, or age. Furthermore, the amount of their debt is directly proportional to their share in the borrower's property.

The State

The absence of heirs is grounds for terminating the credit agreement. However, there is one catch in this situation: if the borrower has no relatives and has not drawn up a will leaving their property to a third party, the state or municipality becomes the potential heir. In other words, the debt to the bank will be paid by the state.

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How to repay a loan in the event of the borrower's death

If the borrower has heirs, their obligations to the creditor pass to them. It should be noted that the debt falls on their shoulders from the date of the debtor's death, rather than from the moment of inheritance. Therefore, the first thing heirs must do is provide the bank with a copy of the death certificate to prevent further accrual of fines and penalties.

After the documents are submitted, the bank may offer future borrowers several options for proceeding:

• a payment deferral due to force majeure circumstances;
• loan restructuring;
• refinancing of personal and inherited loans;
• writing off fines and penalties accrued after the borrower's death.

Answering frequent questions

To conclude our article, we will answer the most frequently asked questions about a deceased relative's debts.

Can you refuse to pay someone else's loan?

You can only release yourself from paying the loan if you reject the inheritance. In other words, you cannot inherit a relative's property while refusing to pay their debts.

How can you find out if the insurance company will pay off the loan?

You can clarify this point by reviewing the insurance policy. It must contain a provision regarding the debtor's death. If the event is insured, the insurance company is liable to the bank in any case, but we advise checking the exact extent of this liability. For instance, the insurer may pay only part of the debt, cover it in full, or even pay an excess.

How is a deceased borrower's debt inherited?

The loan inheritance procedure is as follows: obtaining the debtor's death certificate, notifying the creditor, contacting a notary, accepting the inheritance, and agreeing on new debt repayment terms with the bank.

Can the bank demand early repayment of the loan?

Yes, if the deceased borrower had overdue loan payments. In such cases, the bank may insist on early repayment of the debt.

The issue of paying off a loan in the event of the primary borrower's death is complex and involves a number of nuances. Therefore, when taking out a loan, we advise addressing this matter in advance to avoid placing your loved ones in a difficult financial situation. When obtaining a loan, be sure to purchase a life insurance policy, and carefully review all conditions: the list of insured events, the loan repayment procedure, and the insurance payout amount.