Dealing with your spouse’s debt liability after they pass away

Is the surviving partner legally liable to repay a debt incurred by the deceased spouse or can he seek exemption?

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The surviving partner has to repay debts of the deceased in specific circumstances.

The untimely death of a husband or wife not only leads to emotional trauma but financial distress as well. Among the many financial problems that surviving partners face, one is debt.

Is the surviving partner legally liable to repay a debt incurred by the deceased spouse or can he seek exemption? Let us consider different categories of debt:

  • Joint debt

A married couple usually opts for a joint home loan as joint applicants. If the primary applicant passes away, the liability for repaying a loan is passed on to the surviving co-signer or joint debtor. If a loan commitment is not honoured by the living co-applicant, the lender can take legal recourse in the civil court, Debt Recovery Tribunal or under the SARFAESI Act, depending on the facts and circumstances.

Also, while a co-owner is generally a co-borrower in a property, a co-borrower may not be a co-owner. A co-borrower accepts the responsibility for repaying a loan with the primary applicant but does not have ownership rights.

  • Secured debt

If a spouse dies while honouring a debt commitment on a secured loan, the surviving partner needs to intimate the creditor about the death and provide a copy of the death certificate. If the living partner does not service the debt, the lender can take possession of the collateral or enforce the security.

However, the lender cannot resort to coercive measures to compel the surviving spouse to make repayments, and any action for recovery or enforcement of security has to be as per the law. On the demise of a spouse, the security offered to the lender during his lifetime is enforceable.

  • Unsecured debt

Since there is no collateral for an unsecured loan, property seizure for loan recovery is ruled out. If a person passes away before repaying an unsecured loan, the lender cannot claim unpaid dues from the surviving partner or legal heirs of the deceased.

The legal heirs are liable to the lender only to the extent of value/assets, if inherited, from the deceased. If no assets are inherited, the surviving spouse or children have no liability towards the lender.

For instance, if the husband leaves behind movable or immovable assets which are inherited by the wife, the creditors can claim all such assets from the surviving spouse in accordance with the law. The court, in such an event, can attach all such assets and the creditors can recover the outstanding amount by selling these after initiating appropriate legal action.

If the surviving spouse has given a personal guarantee to the creditor for fulfilling the obligations undertaken by the deceased spouse, the process of attaching, applying or selling assets of the surviving spouse to recover the outstanding amount can be undertaken by the lender.

(The writer is Managing Partner, SNG & Partners)

(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)