Does the loan disappear after death? This question raises many doubts. The death of a loved one is a great tragedy. However, at some point we have to face the reality, which sometimes prepares unpleasant surprises. If the deceased had a liability to a bank or other financial institution, it may turn out to be transferred to heirs. When will this happen? Let’s look at how the borrower’s death affects the repayment of the liability.
Borrower’s death and loan repayment
Many people believe that cash loans are forfeited after the death of the person signing the contract. However, this is not as obvious as it may seem. It all depends on the type of security and whether it has been established at all. This case was also raised in 2011 by the Polish Financial Supervision Authority, which began to receive information about the improper practices of some banks in the event of the client’s death. It turns out that most banks do not give up charging costs at all. Some suspend obligations while the inheritance case is resolved. There are also situations when, with the death of the borrower, the liability becomes immediately due and the maximum interest is charged on its value.
At present, the situation has changed and the rules introduced in the banks have been harmonized. However, a lot depends on the type of loan agreement. Let’s start with the situation when the loan goes to the estate.
Who repays the loan after the borrower’s death?
According to legal provisions contained in the Civil Code (Journal of Laws of 1964 No. 16 item 93), as well as inheritance law, heirs assume not only the rights of the deceased, but also his obligations. Therefore, the answer to the question of who repays the loan after the death of the borrower can be found in the records of who has the right to take over the estate. The standard situation is that the deceased will be taken over by the children and the spouse. If the testator’s son or daughter died before opening the inheritance, their descendants (children, grandchildren and great-grandchildren) have this right.
The second group of heirs includes the spouse, parents, siblings and descendants of the siblings. The third group assumes the inheritance rights if the abovementioned persons resign or do not exist. There are grandparents, descendants of grandparents and stepchildren. However, the commune or the State Treasury have the last right to inheritance. It may happen that the deceased made a will. In this case, an important document takes precedence. Only when the persons mentioned in it waive this right, should then be guided by statutory inheritance.
It is also worth mentioning that when the loan agreement was concluded with the spouse, the repayment obligation still lies with the other borrower. However, this obligation is also assumed by the heirs of the deceased.
Borrower’s death and credit insurance
One of the options for securing cash and mortgage loans is:
- buying insurance at the bank and transferring the payment entitlement to the lender,
- or assignment of life insurance from an external company.
This form of protection against the risk of non-timely repayment is usually required for older people or singles. If the loan application has been submitted with the spouse or partner, he / she will take over the obligation to settle the liability towards the bank. In other situations, there may be a serious problem with the lender’s recovery of money. That is why such practices are introduced. How it’s working?
Credit insurance against death
When applying for a loan, you have the option of insuring your liability against a variety of situations. Among them are:
- permanent inability to work as a result of an accident,
- total inability to work due to illness,
- temporary inability to work, the reason being a hospital stay,
- serious illness
- and death.
Transferring the rights to the life insurance funds to the borrower guarantees full or partial repayment of the liability. If the benefit fully covers the outstanding debt, then it is closed and the obligation to pay it does not pass to the heirs. Otherwise, the remaining part of the loan is inherited by close people as specified in the will or statutory inheritance.
Credit insurance The death of a borrower who was not married and had no descendants is a completely different situation. In this case, the bank has the right to initiate enforcement proceedings. One of the effects of these activities may be auctioning and then selling the property of the deceased borrower or satisfying the debtor’s other tangible property.
Loan repayment after the borrower’s death
It may happen that the heirs are unable to pay the loan obligation on the terms in force in the original contract. In such situations, it is possible to add an annex to the document, which introduces a new repayment system. However, it all depends on the bank’s decision and its internal rules. If this problem occurs, contact your institution representative immediately. Avoiding creditors does not lead to anything good.
Do I have to pay back the loan after the testator? Death of the Borrower
Amendments to the provisions of the Civil Code (Journal of Laws of 1964 No. 16 item 93) allow heirs to waive their right to succession. The formalities must be completed with a notary public or in court by submitting a statement. However, it should be remembered that this solution is only available for a period of 6 months from the death of the borrower.
In addition, you can not forget about the documents, which will be a will (in the event of such being prepared by the deceased person) and the death certificate of the testator.
In another situation, the heir is deemed to agree to the takeover of the estate together with all the commitments. What should the statement contain? The document must contain all the data identifying the applicant, data of the deceased, date of death, grounds for rejection of the right to inheritance, justification and taking into account other persons belonging to the group of heirs.
Joint bank account and death
Contrary to appearances, having a joint bank account does not guarantee faster and easier access to the inheritance. After the death of one of the owners, the funds accumulated on the account are subject to inheritance law. This means that they will be blocked until the end of the proceedings, which will indicate who has the right to dispose of the money. It may happen that they will be divided between the heirs and co-owner or transferred in full to the other owner. Remember that the bank is required to provide evidence of expenses to cover the costs of organizing the funeral.
In the case of marriage accounts, it will be converted into an individual account upon presentation of a death certificate. However, this solution is not provided by every institution. There are cases when the only way out of the situation will be closing the account. Therefore, before creating a joint account, you should read the rules to avoid situations that we prefer not to even think about.