Does the bank just take the car back if the auto loan isn't paid off?
I know that an executor/ administration of state can handle finances for the deceased. And of course they arnt worried about credit. But what happens to the loan amount if the bank takes the car and auctions it off but it doesn't pay off the loan?
Is the family responsible?
Edit* because I have more questions
Does a person always have to have an estate after they die? What happens to the loan if no one sets one up? If there is no estate and no one takes over the payments. Does it fall on the bank?
What happens to auto loans if someone passes away?
byu/Remarkable-Fee-5921 inpersonalfinance
Posted by Remarkable-Fee-5921
13 Comments
>Is the family responsible?
The *estate* is responsible, not the family.
No. The family is not responsible based on your question.
The estate is responsible for the debt. If the estate doesn’t have enough assets to cover the debt then the family is not responsible.
Unless someone else who is alive is also responsible for the debt (cosignor).
As long as no one else in the family cosigned, then the deceased’s estate would be responsible for the remainder. If theres not a lot or enough in the estate to pay for it then the lender just eats the rest.
All the assets of the deceased are wrapped into their estate, the estate then liquidates assets to pay any debts that the estate has, if there is not enough assets in the estate to cover the debts then the debt goes unpaid and the lender takes the loss. Debt is not handed down, you are not responsible to debts you did not take out.
If the loan is only in the name of the deceased, then the family is not responsible to pay the debt. The debt must be satisfied before assets can be transferred from the deceased’s estate to the family, though
So, if the bank gets the car back and sells it but there is still a balance due, if the estate has other assets that are within the estate (like checking account, or stocks, or a house) then proceeds from those other assets must be used to pay off that debt (and other debts) before the family (or other heirs) can take possession
Note that life insurance doesn’t count, that is not “inside” the estate and is paid contractually directly to beneficiaries
If the car is the only asset in this person’s estate, there’s nothing else of value, you can safely let the car go and not worry about it
The family would not be responsible unless they’re cosignors of the loan. The estate would retain responsibility for the debt. So the car would go back to the lender and if there was negative equity on it, other assets within the estate would cover the difference. If there’s not enough assets to cover the debt, the lender is stuck with the remainder after all assets have been put toward the debt. This would take place before distribution of assets to whoever is named in the trust or will.
However, the lender cannot take life insurance payouts to satisfy the debt because the policy isn’t considered an asset of the estate, rather it is a contract between the company, the decedent, and the beneficiary.
Yes, everybody who dies has an estate. That doesn’t mean anything other than “the debts and assets you left behind”.
* If you have neither, great, things are easy. Your heirs can walk away and forget about it
* If you have assets without debts, then you either need a will to distribute them or your heirs can open probate to figure it out (there’s otherwise a natural progression from spouse, kids, parents, etc, but if nobody chases it the state won’t do anything; they’ll just escheat the estate and somebody can find it later in unclaimed funds).
* If you have debts and no assets, your heirs can walk away and let the creditors open probate and fight it out among themselves. If there are no assets, there are no assets. As long as nobody took something they shouldn’t, nothing bad happens (furniture, clothing, electronics, etc are all assets and could be sold to settle debts, so if you think, “grandma had nothing but her old recliner where she’d watch her stories, I’ll just take that,” creditors could come after you for however many dollars they think that chair was worth).
* If you have debts and assets, you should make sure you do some estate planning to ensure most of those assets bypass probate. Assets with beneficiaries or pay on death clauses will not be available to creditors. The goal is to get as close to 100% of your assets as possible protected from probate. Your estate executor/executrix (that’s a cool name for when the executor is a woman) will have their work cut out for them if you didn’t plan ahead, and can end up wasting a huge chunk of your estate on probate attorneys fighting creditors. Don’t put them through that. Plan ahead.
The loan balance is the responsibility of the estate. If the estate stops paying the bank can repo the car and go after estate assets to settle the debt. If the estate didn’t have assets, and a buyer could not be found that was willing to pay the loan balance, the bank would repo with no fault to the heirs.
In practice, my grandparents died in short succession with two financed vehicles. One was “bought” by my dad. The vehicle was worth $15k and $10k was owed. He got a $10k loan to pay off the current loan, and his share of the estate was reduced by $5k.
The other was upside down, let’s say worth $15k but $20k was owed. The estate kept paying and sold the car for less than was owed. It sounds like there was about $100k in cash in the estate, so the estate paid the $5k difference to close the loan.
Individual family member/heirs are never responsible for debt of their deceased loved ones
The estate is obligated to pay debts before distributing anything to heirs
In the case of an auto loan, which is debt secured by a lien on the vehicle, there are a few few options.
1. The executor can pay off the loan, the estate can keep the car, and then sell it or pass to an heir.
2. The executor can sell the car to pay off the loan and put any extra into the estate. This could be a family member who takes out a loan to get the car.
3. Executor can sell the car and add some money from the estate to pay off the loan yes, the car is worth less than the debt. Often, if there is negative equity, the executor can negotiate a voluntary repossession with the loan company, tell the loan company there are no assets to pay the negative equity, and the loan company will happily take the car back with no hassle and eat a small loss… Instead of trying to repossess it the hard way. The loan company can also put in a probate claim against the estate for the value they lost.
4. If the executor stops making payments, the loan company can repossess the car and pay any positive equity less fees back towards the estate or pursue the estate for additional funds owed for negative equity.
5. If there is a cosigner, the loan company keeps seeking payment from them.
If you’re asking because the loan is underwater… The executor should try path number three. Call and say “unfortunately she passed away. We are grieving. It looks like she owes more than the car is worth. The estate does not have any positive assets. Happy to coordinate time for you to come recover the vehicle.”
same as any other debt – creditors file claims against the estate. family isn’t responsible for loans.
I imagine in the case of an auto loan the options are the estate keeps paying the loan or the estate defaults on the loan, the vehicle gets repossessed and the lender files a claim against the estate for any outstanding value.
In addition to everyone letting you know the right information about your specific question, I wanted to pass along the advice that if someone calls _you_ about a deceased loved one’s debts, don’t let them bully you into agreeing to handle the debt. Best to not talk to them at all.
Also keep in mind if the Estate doesn’t have enough money for the loan or for the balance of a credit card card, the Estate still has to pay taxes on that
The estate is always responsible
You always have an estate but if they didn’t have anything you don’t have to open the estate.
My wife had cancer and was disabled. She owned nothing and had nothing when she passed. I didn’t open the estate.