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A grim and tragic question perhaps, but I'm curious:

What happens when a person that co-signed on a loan dies? Is the co-signer's estate potentially liable until the loan is paid off, the same as if the co-signer had borrowed the money themselves? Or, does the responsibility for the loan die with the co-signer? Does the bank/lender take on that risk?

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Can you get insurance on the loan to cover such issues (deaths/disasters/company bankruptcy)? Maybe it is even included by default? – James Mar 2 '10 at 21:38

4 Answers 4

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I did a Google search on co-signer death, which provided a lot of results that looked useful. The top result (from the Boston Globe) basically says "it depends".

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I would love to see this answer improved. Maybe some excerpts of the results that provide a better context and information. – Chad Feb 9 at 16:51

Unless there is a specific clause in the contract, then yes, it would fall to the estate.

Just as assets tend to live on after you, so do your debts; or in this case, your debt-guarantee on behalf of someone else.

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What if there isn't much of an estate? How does a co-signed loan rank in the priority list of people who get paid with limited assets? – MrChrister Mar 5 '10 at 0:09
IANAL: But, likely it would end up in the courts then. The ranking would include if there the co-signer has put up any specific security, i.e. their house, as co-signing collateral. In any case, the creditor would stand ahead of regular inheritance by the usual heirs (son/daughter). – sdg Mar 5 '10 at 14:25
What if there has been no default. IE someone cosigns on a 3 year Auto loan. 10 months in the cosigner dies but the Primary borrower has not missed any payments and has not had a status change that would allow them to refinance or cause them to default. – Chad Jun 16 '14 at 19:03
@Chad: That would be the aspect I'd be most curious about, especially if the executors of the estate knew nothing of the loan's existence. If the lender discovered that the cosigner died, could an inheritor be approached out of the blue to put up a surety bond even if the original borrower was current in his payments? – supercat Feb 7 at 0:16
@supercat - I am sure they could... what I do not know is what would happen if the estate said no we are not going to do that or what recourse the estate might have against the original borrower. – Chad Feb 9 at 16:53

Unless your contract says otherwise, the estate has primary responsibility, but the cosigner is responsible for the remaining balance.

There is never a good reason to co-sign for a loan. Don't do it.

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"never a good reason"? I'd argue there are a host of valid scenarios in which co-signing makes a LOT of sense – warren Apr 27 '11 at 20:15
For the debtor, sure. Name a scenario where accepting liability for someone else's benefit makes sense to the person co-signing. – duffbeer703 Apr 27 '11 at 20:24
let's see - your parent needs a new car but doesn't have the credit rating on their own (but does have the income) to qualify for the 0% but with your help they will? – warren Apr 27 '11 at 21:03
Unless you're holding the title on the vehicle, no that doesn't make sense from a financial POV. Mixing business & family is usually a recipe for an unhappy situation. – duffbeer703 Apr 28 '11 at 1:45
@duffbeer703 - guess I am more concerned that my family be doing well than to worry about a little mixing of business with family :) – warren Apr 28 '11 at 1:48

Yes, I saw this happen once before. The person that died had a life insurance policy that easily covered the obligation. If this a concern to you, then consider the cost of a term life policy.

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