Who should pay the loan when the borrower dies?

Legal Obligations Following the Death of a Debtor: Heirs and Guarantors

When a debtor passes away, their credit obligations, liabilities to the bank, and other debts are not automatically extinguished. This process is governed by a well-established legal framework under the relevant articles of the Civil Code of the Republic of Azerbaijan and the Decision of the Plenum of the Constitutional Court dated June 4, 2018.

According to Articles 470, 472, 1146, 1255, and 1306 of the Civil Code, debt liability arising after the death of a debtor is directly linked to inheritance relations. The legislation establishes a specific distribution of obligations to balance the rights of both the heirs and the creditor (the bank).

How is the Liability of Heirs Established?

In its 2018 decision, the Plenum of the Constitutional Court clarifies this matter as follows: Heirs who have accepted the inheritance are jointly and severally liable to the decedent’s creditors from the day the inheritance opens, to the extent of the value of the inherited property transferred to them.

This implies the following:

• Acceptance of Inheritance: If an heir accepts the inheritance, they are held liable for the debt up to the value of their share in the estate.
• Rejection of Inheritance: If an heir does not accept the inheritance, they bear no liability for the debt.
• Cap on Liability: The volume of the inherited share constitutes the upper limit of liability. The law does not compel an heir to pay an amount exceeding the value of the inheritance received.

The Constitutional Court specifically emphasizes that heirs who accept the inheritance effectively become the “debtors” regarding the decedent’s obligations. Consequently, the heirs are the primary party to whom the creditor (the bank) must apply.

What Happens if the Heir Does Not Pay the Debt?

Pursuant to Articles 1255 and 1306 of the Civil Code and the Constitutional Court’s decision: The creditor reserves the right to raise a claim against the guarantor (surety) if:

1. The heirs evade payment of the debt.
2. The heirs fail to fulfill the obligation timely or correctly.
3. The value of the inheritance received by the heir is insufficient to cover the debt.

Two critical legal principles apply here:

• Continuity of Guaranty: The status of the guaranty does not change upon the death of the debtor. In other words, the guarantor’s obligation is not automatically terminated by the debtor’s passing.
• Full Liability of the Guarantor: The scope of the guarantor’s liability is not limited by the heir’s share of the inheritance. The guarantor remains liable in full accordance with the terms specified in the contract.

Conclusion: What Does the Law Stipulate?

The legal framework clearly indicates that:

• The bank is not obligated to write off the debt following the debtor’s death.
• Heirs who accept the inheritance must repay the debt only within the limits of the value of their inherited shares.
• If heirs fail to pay or the estate is insufficient, the creditor may pursue the guarantor.
• The guarantor is not released from liability due to the debtor’s death and remains fully responsible under the contractual terms.

Legislation structures this matter to maintain a balance between the rights of the deceased’s family members, the interests of the creditor, and inheritance relations. Therefore, it is legally vital to consider associated obligations when accepting an inheritance.

Since every situation requires a distinct legal approach, professional legal support can prevent potential risks. As the Arbitro legal team, we ensure the full protection of your rights by providing expert guidance at all stages of credit, inheritance, and contractual obligations.

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