What happens to outstanding credit card bills and loans on death?
Here is a low-down to what happens to outstanding loans in case of the sudden demise of a borrower.
The sudden demise of a family member can throw life upside down in many ways. At this time of emotional transitions, a grief-stricken family lasts expects to inherit an outstanding loan of the demised member. The situation could be challenging if the loan amount is huge enough. Having said that there have been several instances where the demised person left behind huge outstanding loans to be paid. To help you understand here is a low-down to what happens to outstanding credit card bills and loans in case of the sudden demise of a borrower.
Outstanding credit card bills and loans
The responsibility for the payment on the death of the cardholder lies with legal heirs. The legal heir needs to pay the amount outstanding on the credit card along with interests from the inherited property. Adhil Shetty, CEO, BankBazaar.com said, “When a person dies, everything they owned becomes a part of their “estate”. This includes property, investments, jewellery, cash, and any other investments. Any debt they owe, including credit card outstanding, is paid out of the assets from their estate. It is the responsibility of the administrator of the estate to clear all outstanding debts. Unless they are joint cardholders, there are no legal provisions that hold the surviving spouse, parents, or children responsible for clearing credit card debts.”
Credit card loans are treated similarly to other outstanding dues on the credit cards. However, credit card debts, being unsecured debts, will be among the last to be cleared.
No legal heirs or small estate
While home loans are secured loans as they have collateral, personal loans and a credit cards are considered unsecured loans. In such types of loans, a lender cannot ask the legal heirs for the repayment of a loan if the value of the estate that he or she inherited is too small to cover the outstanding loan. In such cases, borrowers have to write off the loan.
“The debts are to be paid out of the borrower’s estate. If the borrower’s estate is insolvent, i.e., the debts are more than the value of the estate or if the estate itself is too small to cover debts, then the lender will have to write off the debt,” Shetty said