Quite often when kin inherit assets passed down by their parents, they wonder if they would also inherit their unpaid debts. Everyone wants to be left valuables and lucrative assets, but when it comes to inheriting liabilities people often shy from claiming responsibility. But Prakhar's case was different. He was worried that his father's bad debts would haunt his future. Was he destined to doom? Here is his story.
Prakhar Joshi didn't exactly have a childhood that every child would dream of. Born as the only son after four sisters in a small town of eastern U.P., Prakhar, could always feel the pressure. His father was a humble government employee and his mother was forever entangled in household chores. There were more mouths to feed than hands to work. His dad's salary was enough to put food on the table, keep them clothed and sheltered but it was never enough to plan anything big. They didn't have a car and lived in an accommodation provided by his dad’s office.
However, time did fly and soon all his sisters were married. By now Prakhar had a stable job and his father had retired. As a dutiful son Prakhar shouldered the responsibility of all household expenses and never asked his father what became of his pension. One evening Prakhar’s dad had a nearly fatal heart attack and was admitted to ICU. Unfortunately, he couldn't survive it after spending some days at the hospital. Battling with the loss of a loved one, Prakhar now faced huge medical bills and a pile of bad debts.
Beyond Prakhar’s knowledge, his father had been secretly using his entire pension to pay for personal loans that he had taken to get his daughters married and fund Prakhar’s education. The most shocking revelation was that his dad had been missing payments on all his debts, intermittently, as the EMIs were more than what he could afford after the monthly expenses. All his life Prakhar had struggled financially and today he did not want to take on additional burden of debts, especially those that his father had taken.
The day his dad had a heart attack, Prakhar had decided to buy a car. Now, if he was made responsible for dad's bad debts then he was sure his CIBIL score would be spoiled. He may not even be eligible for a car loan for low CIBIL score. That did break his heart.
No, he was not being thankless. He loved his dad and was grateful to him for all that he did but he wondered if his father's bad debts would be passed on to him? If anything, he hoped his financial battles were over. But with this new development he wasn’t so sure anymore.
Being a successor to his father's legacy, it is Prakhar’s moral duty to pay his father's creditors but he is not legally bound to do so. Let us look at some situations on how some loans would be settled in such a case.
Secured loans such as home loan or car loan, if left behind then either the loan can be transferred in the name of all heirs and make them equally and jointly responsible for the loan; Or, the bank can auction the asset and recover the dues. Here the bank is within its rights to recover their debts.
For outstanding unsecured loans such as a personal loan or outstanding credit card bill, the bank can ask the legal heir or heirs to repay if and only if they have inherited any assets. Or if the loans were guaranteed or co-borrowed by the successor.
Prakhar's dad did not bequeath any assets to him. Infact, he didn't have anything that belonged to his dad. However, banks could file a civil suit and make him responsible to pay the debts. Best would be to speak with the bank and close those accounts amicably.
Loans taken from family members or friends have no legal sanctity unless drafted legally. If there is a legal proof that in the absence of the primary borrower the heir will be responsible to pay the dues then of course the successor will have to pay. Orelse, one cannot be forced to repay such debts legally.
Prakhar was not legally bound but dutifully bound. His dad hardly had any belongings that he left behind. But he knew it was futile to fight any case with the bank as the laws were stacked in their favour. So he spoke to the bank's branch manager at length and explained his personal situation. The loan was settled but was not recorded in Prakhar's CIBIL as he was not a legal borrower.