Your estate is responsible for paying your debts after you die. The creditor to whom you owe the car loan has the right to pursue repayment of the loan even following your death. Unless you have insurance to cover the outstanding debt, state law will determine in what order your debts get paid from money in the estate.
Role of the Executor
The executor of your estate will have the responsibility of paying your unpaid debts. It is the executor's duty to notify your creditors that your will is being probated. State probate laws vary, but usually creditors have a fixed period of time to come forward. The lender or finance company must file during the probate process for the balance of the auto loan to be paid out of your estate. If there is not enough money in the estate, the debt will go unpaid.
If you live in a community property state, your spouse could be responsible for paying off your car loan debt. Community property states generally consider debt acquired by either spouse a community debt if it benefits the family as a whole. If that applies, your spouse would then be responsible for paying off the balance of the loan after your death. However, even in community property states the laws can differ. An attorney practicing in your state can explain a spouse's rights and responsibilities under the law. No matter in what state you reside, if you and your spouse are joint applicants on the car loan, your spouse will be responsible for any remaining debt when you die.
Except for your spouse, surviving relatives are not legally responsible for repaying debts you incur in your name, according to a consumer alert published by the Federal Trade Commission. Depending on the state where your will is filed, even your spouse might not be responsible for settling your individual debt. If your estate is insolvent, which means there are not sufficient assets to pay your debts, the car loan lender would have no legal right to collect the debt. However, if a friend or family member co-signed the auto loan for you, that person becomes responsible for repaying the loan upon your death.
If you don't want to leave the burden of paying off the debt to your liable spouse after you die, or have money that could go to your heirs removed from your estate, credit life insurance is a form of term life insurance especially designed to cover the amount of repaying a loan. The policy is in effect for a fixed period of time and cannot be renewed. This type of policy will not pay more than what you owe on the loan, but it is one way to assure the loan will be paid off if you die. You can buy a policy at the same time you take out the auto loan. The insurance premiums are added into your monthly auto loan payment.
- AARP Bulletin; "Debts After Death"; Cathy Gandel; August 2010
- Auto Credit Express; Car Loans and Credit Life Insurance; Cypher; June 2010
- Bills.com; Am I Liable for My Deceased Spouse's Debts; November 2009
- FreeAdvice: Am I Liable for the Debts of a Deceased Parent or Spouse
- FindLaw; Paying the Debts of a Deceased Relative - Who is Responsible; June 2009
- Photo Credit Hemera Technologies/AbleStock.com/Getty Images
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