When a person dies while still owing money on an unpaid loan, the deceased's estate is responsible for settling the debt. The executor of the estate must pay the remaining balance of the loan from the deceased's assets. If the deceased had no assets, the loan must be paid from other sources such as life insurance or family members.
In some cases, the lender may forgive the remaining balance of the loan if there is no other way to pay it off. However, this is not always the case and lenders may still pursue payment from the deceased's estate. If the debt is not paid in full, the lender may pursue legal action against the estate.
If the deceased had a co-signer, the co-signer is responsible for paying the remaining balance of the loan. The co-signer is legally obligated to pay the loan even after the death of the primary borrower. If the loan is not paid off in full, the lender may pursue legal action against the co-signer.
When a person dies in the middle of an unpaid loan, it is important to understand the legal responsibilities of the deceased's estate and any co-signers.