Every year roughly 42,500 Americans die in automobile accidents. Ironically, many of those people didn’t own their vehicle outright. They were still paying off an auto loan.
An estimated 40% of Americans are paying off an auto loan at any given time. The Consumer Financial Protection Bureau has the number at 100 million Americans with auto debt. Meanwhile, Experian notes that the average auto loan is $22,612.
You may have no idea that a family member has an outstanding auto loan or how much they owe until they die. But who’s responsible for the balance? You don’t have to pay for it directly, but the next of kin may pay for the loan indirectly.
Who Pays an Outstanding Auto Loan
When a person dies what happens with debt depends on who is owed money. In the case of an auto loan, the balance will need to be paid or the lender can take action to recoup their losses.
Any Co-Signer on the Loan Will Be Responsible for the Debt
The first thing to consider is whether there was a co-signer on the auto loan. If so, that means the co-signer is now responsible for paying off the balance. This is the case even when the co-signer doesn’t inherit the vehicle.
Auto Loans Aren’t Inherited
Family members should be aware that auto loans aren’t inherited. You can’t be compelled to pay off the loan if your next of kin dies before the balance is paid off.
All debt is essentially owned by the estate along with the deceased’s assets. As such, the executor of the will or person assigned by the probate court to handle the estate will arrange to pay off auto loans and other debts with assets in the estate.
The Lender Must File a Claim
In order for the lender to get the loan balance paid they must file a claim against the deceased’s estate in probate court. Until that is done technically the estate doesn’t owe anything on the loan. However, loan payments must continue to be paid or the loan will be in default.
Scenario 1: The Estate Has Funds to Pay Off the Loan
If funds are available, the estate will pay off the auto loan after the claim has been filed. The estate may have to sell the vehicle in order to pay off the auto loan balance. Any money over the balance would go back to the estate to settle other debts or the proceeds will be awarded as per the will or probate law.
Scenario 2: The Estate Doesn’t Have Funds to Pay Off the Loan
If payments are missed or the estate doesn’t have enough money to pay off the loan, the lender will likely repossess the vehicle. They will then sell the vehicle in an effort to make back the money that wasn’t repaid on the loan.
Scenario 3: Someone Assumes the Loan
Let’s imagine that the estate doesn’t have the funds to pay off the auto loan, but the next of kin wants to keep the vehicle and simply continue making the monthly payments until the loan is paid off. The lender may be willing to let the family member assume the loan, or they may offer to refinance and essentially create a new loan.
Because each state has its own laws regarding estates and debt repayments, you may want to consider hiring a probate attorney. They can help settle disputes and determine the most cost-effective way to pay off debts.
We can’t help you manage the estate, but Direct Cremate can handle all of the cremation arrangements so you can focus on other matters. Give us a call or text 24 hours a day to arrange direct cremation services.
