Is estate responsible for car loan if car returned?

Deceased passed away without a will in New York. He had financed a car in his name alone. His spouse returned the car to the bank under the impression that the loan would be considered paid in full. Now the bank is looking to be paid on the difference between the loan amount and the amount they received after auctioning the car. Is the estate or his spouse required to pay the difference?

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Apr 02, 2015
Secret debt
by: Anonymous

Whether or not the car loan would be your obligation should your husband died depends on whether you live in a separate property or a community property state. Most states are separate property states, which means that unless both spouses sign for a debt, the surviving spouse is not responsible for any debts that the deceased spouse may have owned when he/she died.

If you live in a community property state however -- Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin -- you and your spouse are legally responsible for each other's debts even if you both of you did not sign for the debt.

My husband secretly financed his 86 year old mother a car. He is in debt up to his eyeballs. He is using part of his retirement check to make this particular payment. When I found out, I was furious because we have nothing in savings and I feel as though his retirement check should be for our future after 25 years of marriage. He is over worked and Im afraid if something happens to him I will be left with the debt of the car. Can you advise me on this issue??

Nov 05, 2012
Is estate responsible for car loan if car returned?

When a car is reposessed or returned to the lender, the lender sells the car and applies the sale proceeds to the outstanding loan balance. If there is a balance due, the lender is entitled to look to the borrower, or the borrower's estate, for payment of that balance. (Assets of the deceased may have to be sold to come up with the money needed.) If the balance is not paid, the lender is entitled to file a lawsuit to get payment.

If there is not enough money in the estate to pay the balance, then the lender will be out of luck and given that the deceased died in New York, which is a separate property state, the lender will not be able to look to the spouse for the balance owed. (It would be a different story if the deceased had lived in a community property state.) For additional information about the debts of the deceased and who is and is not responsible for them, go here deceased person’s debt FAQ.

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