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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
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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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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
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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
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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
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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
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