What Happens To The Credit Debt Of A Deceased Person?
What Happens to the Credit Debt of a Deceased Person?
If the Deceased Person Had Life Insurance for Their Credit
First of all, it should be noted that one of the most important points in this matter is whether the deceased person had life insurance when they took out the credit. Taking out insurance is particularly important when taking out a mortgage, as these are long-term loans with high repayments. Life insurance, which we may view as an additional expense when taking out a loan, becomes crucial in such situations, as the deceased person’s debt is covered by the insurance. However, if there is no insurance, these debts are transferred to the deceased person’s heirs.
If There Is Life Insurance
While life insurance is not mandatory for loans, it is generally recommended by banks. This insurance is available for all types of loans, regardless of whether they are mortgage, personal, or vehicle loans.
In fact, having life insurance is the right choice for you. The primary purpose of insurance is to cover your debts. Therefore, if someone with an outstanding loan passes away, all debts are paid by the insurance company, except in certain exceptional cases.
These exceptions are:
If the borrower’s death is suspicious, such as suicide, the insurance company may not pay. In such a case, the insurance company may request an autopsy.
If the person using the loan had an existing illness at the time of taking out life insurance but did not mention it in the policy, and the insurance company determines that the illness was present at the time, it will not pay.
Can the Loan Amount Paid Through Life Insurance Be Recovered?
If a person who took out a loan by purchasing life insurance passes away before the installments are completed, can the amount of the loan they paid be recovered?
The answer to this question is yes, it can be recovered. This is because life insurance is taken out for the total amount of the loan. In this case, after the remaining debt is paid off, the amount paid by the deceased person must also be paid to their heirs.
However, insurance companies may refuse to reimburse all or part of the “paid loan installments” to the heirs, citing additional contract clauses as justification. In this case, instead of accepting what the insurance company says, it is definitely beneficial to review the insurance contract or consult a lawyer who is an expert on the subject.
To receive this payment, you must apply to the bank with the death certificate of the deceased person and one of the persons listed in the inheritance certificate or a person appointed as a representative. If the insurance company refuses to make this payment, you can seek your rights through legal channels.
In the Absence of Life Insurance
If a person who has passed away before their loan is fully repaid did not have life insurance, their legal heirs are obligated to assume all debts. This is because the distribution of assets in inheritance cases also applies to debts. If the heirs do not wish to pay the loan, they have the right to renounce the inheritance. In such a case, the liability for the deceased person’s debts is also eliminated. If the deceased person did not have life insurance and had a guarantor for the loan, the guarantor is held liable in this case as well. If there is no guarantor, the debt is collected from the heirs.
Just as the deceased person’s assets and receivables are transferred to the heirs, the debts are also transferred in the same manner. For this reason, it is important to take out life insurance when using credit, rather than viewing it as an unnecessary expense. If banks cannot reach a conclusion regarding the debts of a person who has died through normal means, based on the heirs and the estate, the debt is ultimately classified as a bad loan. Additionally, if the cause of death is due to natural disasters such as floods or earthquakes, banks may choose to write off the entire debt in accordance with their policies.
What Happens to Credit Card Debt?
The same applies to credit cards as it does to loans. If the deceased had life insurance, the credit card debt is paid by the insurance company. In such a case, the amount paid by the insurance company is limited to the coverage amount stated in the policy. After the credit card debt is paid off based on the coverage amount, any remaining balance is transferred to the deceased’s relatives.
In this regard, the deceased’s heirs should go to the bank branch with the death certificate of the deceased relative to inquire about the debt status. They should then find out if there is insurance and, if so, apply to the bank with the necessary documents. If the heirs do not wish to pay this debt, they can renounce the inheritance and be exempt from paying the credit card debt.