The loss of a loved one not only causes profound pain but also creates a plethora of new duties including managing their debt. The obligations or debts of a person must also be settled, just as their possessions are dispersed after death. However, unlike the asset distribution outlined in the person's will, there is no guaranteed way to pay off the debts of a deceased person.
Here's all you need to know about how to manage the unsecured and collateral-backed secured loans of a deceased person:
A lender cannot force legal heirs to repay an unsecured debt. Furthermore, a deceased person's property cannot be taken to cover an unsecured debt since there is no security to back up the loan.
However, legal heirs are accountable to the lender for the value of assets they may have inherited from the dead. For example, if a woman inherits any movable or immovable property from her husband, the creditors are legally entitled to take possession of any such property from her after the death of her spouse. In such a situation, the court can seize all such assets, and the creditors can then sell them for debt recovery.
Also, the lender can conduct the procedure of attaching, applying or selling assets of the surviving spouse to collect the outstanding amount if the surviving spouse has provided a personal guarantee to the creditor for meeting the obligations undertaken by the deceased spouse.
In the case of a secured loan, the lenders already have collateral. As a result, it is up to the legal heirs to determine whether or not they wish to maintain the asset and settle the lender's debts.
However, the lender cannot force the legal heir to make payments. If the legal heir doesn't pay the loan on time, the lender may seize the collateral or exercise the security.
If you have made the decision to negotiate with your lender or pay off your obligations, you should move quickly because any delay will result in a higher interest load.
Experts advise the legal heirs to contact the bank with the intention of settling any unpaid debts to minimise disputes.