Unpaid loan from a deceased person: are family members required to repay? | Photo credit: Representative image
The second wave of Covid-19 has caused insurmountable pain and hardship to the family members of hundreds of thousands of people who have died. The situation has become particularly precarious for the surviving family members of the deceased if they have an outstanding loan. In such a case, is the legal heir or the surviving member obliged to pay the membership fee?
Common debt
If a couple took out a joint loan such as a home loan as co-applicants and the principal applicant dies, the responsibility for repayment of the loan is transferred to the surviving co-signer of the loan application. In the event that the surviving co-applicant does not respect the repayment commitment, the lender can take the legal route for recovery with the civil court, the debt recovery court or under the SARFAESI law, depending on the situation. Note that while a co-owner may be a co-borrower, the reverse may not be true.
Secured debt
In the event that a spouse dies while honoring a secured loan, the surviving partner will have to initiate the resort lender and provide the death certificate. In the event that the surviving partner does not honor the commitment, the lender is entitled to take possession of the collateral or to enforce the collateral.
But the lender cannot force the surviving member to pay.
According to Rajesh Narain Gupta of SNG & Partners, if a person dies before repaying the unsecured loan, the lender cannot claim the unpaid contributions from the surviving partner or the legal heir of the deceased debtor. In the absence of a guarantee, foreclosure of real estate is also excluded.
The partner or the legal heirs are only liable to the extent of the property inherited from the deceased person. If there are no assets, the surviving spouse or legal heir has no legal obligation to the lender.
But in the event that the indebted spouse of a deceased relative leaves behind movable or immovable property, creditors can make a claim against such property. The court can seize these assets to recover the unpaid amount after due legal proceedings.
