The death of a loved one who had a credit obligation on his head can be quite embarrassing. The deceased’s family often wonders about the consequences and how the bank will deal with it. Borrower’s death and loan repayment – what happens next with the repayment obligation?
A bank loan is a costly and serious commitment that you should think about before taking it. This commitment, of course, gives you a valuable shot of the cash you need. However, it also binds the consumer with the obligation of timely, regular and staggered repayment. Many consumers try diligently and timely to pay all debts owed to them, but sometimes this may not be enough.
There may be random and unexpected events in life that will upset the current order in consumer finances. As a result of an accident, illness, job loss, natural disaster, urgent and costly expenses and other factors, further repayment of loan installments in their current form may not be possible. We are also talking here about death.
How do banks protect themselves against random events in the borrower’s life?
However, banks are aware of how unexpected and random events can thwart the previously planned repayment plan. Therefore, depending on the type of loan and the amount taken out, banks place great emphasis on collateral for repayment. It can take various forms.
- Purchase of credit insurance in the event of eg loss of health, disability, death (optional for consumer loans, for mortgage – required by most banks).
- Collateral in the form of a pledge eg mortgage.
- Borrowing with a co-borrower or other co-borrowers.
The abovementioned forms of collateral are a kind of emergency plan for the bank if the borrower loses the chance to repay the liability or dies due to random reasons. Depending on what circumstances caused the lack of further repayment possibilities, the bank may reach for the possibilities arising from the collateral. For example, it can take over a house pledged as a mortgage or impose an obligation to further repay the liability of a co-borrower or co-borrowers. But what if the consumer is killed while paying the debt?
Borrower’s death and loan repayment – what next?
In the event of the borrower’s death, in the case of repayment of the loan, it is essential whether the deceased concluded with the bank an agreement on securing the repayment of the liability when signing the contract. Depending on the aforementioned forms of collateral, the bank may use available funds to obtain further income from repayment of loan installments. If we are talking about pledging eg a mortgage, it will be more a form of compensation for not obtaining a full refund of the loan amount granted.
However, these scenarios report to a specific assumption. The borrower, when concluding the loan agreement, should take out additional insurance or apply other collateral for loan repayment. But what if he didn’t? After all, with cash loans – there is no such requirement. The insurance company may also refuse to pay money if the deceased suffered death, eg by suicide.
Can a loan be inherited?
Sometimes the relatives of the deceased are seriously concerned about the issue of further repayment. Those who have been included in the will and therefore have become heirs have particular concerns about, for example, the potential inheritance of their obligations. However, can a bank loan be inherited this way? These principles are contained in the Civil Code, more specifically Article 922 et seq. 1 . After reading this entry, there is no doubt that the law does not provide for dedicated regulations for the issue of inheritance of loans.
Only the general rule can be used. He says that upon the death of the deceased, all the rights and property rights of the deceased pass to his heirs. Unfortunately, this is also connected with the creation of an obligation to repay the loan by all the heirs of the deceased borrower. In other words, yes, the loan may be inherited by a close dead borrower.
What is the repayment of the loan by relatives of the deceased?
The acquisition by the heirs of the obligation to repay the loan also means that the obligation to regulate related obligations on the initially established assumptions is also transferred to them.
- It is therefore necessary to pay installments in a timely manner. It includes previously determined additional costs such as commission, interest, etc.
- The bank has the right to apply the same restrictions in the event of non-repayment or delay in installments as specified in the contract.
In this way, the validity of the provisions contained in the contract concluded by the deceased with the creditor (bank) does not change. Responsibility for repayment of the inherited loan is borne jointly and severally by all persons who have been included in the will by the deceased.
What part of the loan must the heir pay back?
The question of what proportion of the loan, or more precisely – the installment of the loan, will have to be repaid by the consumer depends on what proportion of the fall has fallen to him. Any heir may accept the entire estate, together with the obligations of the deceased borrower. In addition, the law also gives him the right to apply the so-called inventory benefits. It is the responsibility for inheritance debts, but only within the value of accepted assets. Moreover, the heir also has the right to reject the inheritance, which he has legally six months from the date of the inheritance.
Therefore, the final amount of the obligations that the heir will have to settle for the inherited debts will be obliged to respond to the inheritance in which it was included. When all the heirs make the decision, it will turn out who will have to pay back what specific value of the loan installment. It is worth remembering to ensure that the documented definition of your attitude towards inheritance is documented. Otherwise, if you do not make such a statement, it is assumed that the heir accepts the inheritance directly – together with the obligations that the deceased had on his account during his lifetime.
How do you know the current loan amount?
We already know the information on the principle of inheritance and forfeiture of credit obligations on relatives of the deceased, which he himself included in the inheritance. What does the issue of insight into loan parameters look like? After all, those who will pay it back would like to know how much money is left to be paid to the bank. Theoretically, the bank in this situation is encumbered with banking secrecy. In practice, however, the Banking Law provides for the principle that confidentiality does not apply to persons concerned. And after inheriting the loan – the heir becomes the most privy.
To get information on the loan, remember two important documents when you go to a bank branch. First, the borrower’s death certificate should be presented. Secondly, the most important, it will also be necessary to enclose a final order confirming the acquisition of inheritance by a close deceased. The bank must be sure that the person has accepted the commitment in question, and not eg rejected the inheritance 2. In such a situation, the bank could be exposed to a breach of banking secrecy if it provides information about the loan to the person who turned it down.
After presenting the attached documents, the bank should provide information, including on the loan amount, balance, repayment schedule, etc. Then, there is nothing else but the transition to regulatory loan repayment. The bank will consider that there are or exist persons who will guarantee repayment of the remaining amount. As a result, it will require timely repayment in installments of a pre-determined amount.