23 Jun What happens to a car loan when an owner dies?

Q. My sister’s husband died recently without a will. He did have a car loan that was in his name only. The title of that car is also in his name only. I’m wondering what happens to that car loan now that he has died?
— Trying to help

A. Debts are not simply erased when someone dies.

The deceased’s loans and debts remain in effect unless the loan agreement says otherwise, which is usually not the case, said Naomi Becker Collier, an attorney and partner with Pashman Stein Walder Hayden in Hackensack.

She said the loans simply become debts of his or her estate.

An estate consists of assets owned individually by the decedent at the time of death without a beneficiary designation, such as the car in this example, Collier said.

She said because the debt is secured against the car, it will have to be satisfied by the administrator of the estate — the person that is authorized by the court to administer the estate of a person that died without a will — from other estate assets, if any. Or it could be paid off by the beneficiary of the estate if he or she wants to retain the vehicle, or the car can be surrendered to cover the debt, she said.

If the beneficiary of the estate wishes to retain the car but does not have sufficient assets to pay the debt and clear title, assuming the loan may also be an option that can be explored with the lender, Collier said.

“In many instances the outstanding balance on a car loan exceeds the market value of a vehicle, in which case there would still be a debt owed by the estate to the lender,” she said. “In some instances, the administrator of the estate may be able to negotiate the satisfaction of the debt with the lender if there are little or no other assets in the estate, but the lender has the legal right to pursue full payment if the return of the car does not wipe away the debt.”

Practically speaking, she said, if there are no other assets in the estate, then there is nothing to collect on.

“If the lender is aggressive in its collection attempts, an insolvency proceeding may be necessary to prove that the estate has no money to pay any outstanding balance on the loan,” Collier said.

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This story was originally published June 23, 2020.

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