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?

  • 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

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 '15 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.

  • 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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    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
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    @Chad: Suppose the only thing of value in an single-heir estate is a house, and debts total $100,000. By my understanding, the heir would be entitled to either "buy" the house for $100,000 or decline the inheritance and pay nothing; the decision would be based in large measure upon the total value of the debts in question. If the heir paid $100,000 which in present condition was worth $120,000 and then spent another $50,000 on personal-use upgrades, and then it turned out that the deceased had another $50,000 of debt the heir knew nothing about, I don't see any equitable way... – supercat Feb 9 '15 at 18:02
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    ...of assessing such debt to the heir. Had such debt been made known earlier, the heir would have been allowed to decline the inheritance, forgoing what--without that other debt--would have been $20,000 in equity, which would be less of a loss to the heir than having to pay a $50,000 debt or abandoning the $50,000 spent on personal-use improvements. – supercat Feb 9 '15 at 18:07

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
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    @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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    If your parents have no credit rating but income, take a loan in your own name and give them the money. If you are not willing to do that, you shouldn't be willing to co-sign for them unless you don't understand what it actually means. – gnasher729 Jun 10 '14 at 22:40

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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