Will You Inherit Your Parents’ Debt Along With Their Property? Here’s What The Law Says

Last Updated:May 30, 2025, 12:11 IST

In India, heirs aren’t personally liable for a deceased person’s debt, unless they co-signed. Learn how assets, secured loans, and credit card dues are legally handled

Have you ever wondered what becomes of someone’s debt after they pass away? Are their children legally bound to repay it? Can inherited property be at risk? While Indian law provides clear guidance on these issues, many people remain uncertain. This article explains the legal implications of debt and inheritance, addressing common concerns.

What Happens To Debt After Death?

Under Indian law, children are not personally liable for their parents’ debts, unless they have co-signed the loan or acted as a guarantor. Simply being the legal heir does not create a personal obligation to repay a parent’s outstanding loans.

However, if the deceased leaves behind assets, such as property, savings, or investments, creditors have the right to recover the debt from these assets before they are distributed among the heirs. In such cases, repayment is limited to the value of the inherited estate; heirs are not required to pay beyond this amount from their own resources.

How Creditors Recover Debt

To illustrate: if a deceased individual had a loan of Rs 1 lakh and left behind property worth Rs 2 lakh, creditors can recover Rs 1 lakh from the estate. If the estate is worth less than the loan, say Rs 75,000, the remaining amount is typically written off by the lender, as it cannot be collected from the heirs’ personal funds.

Unsecured debts, including personal loans, education loans, and credit card dues, are not backed by collateral. These can only be recovered from the deceased’s personal assets, such as bank accounts, mutual funds, jewellery, or real estate. If there are sufficient assets, the loan is repaid. If not, the debt is generally waived.

What About Secured Loans?

Secured loans, such as home or vehicle loans, are backed by the asset in question. In the event of the borrower’s death, the lender can repossess or sell the property to recover the dues.

If heirs wish to retain the asset, they must take over the loan, subject to the lender’s approval, and continue repayments. This transfer depends on the heir’s financial stability and creditworthiness. If heirs decline to assume the loan, the bank has the legal right to seize the asset.

When Heirs Are Guarantors Or Co-Borrowers

If a child or family member is listed as a co-borrower or guarantor, they are legally bound to repay the entire debt, regardless of their share in the deceased’s estate. These roles indicate that the individual accepted full financial responsibility at the time the loan was taken.

If the primary borrower dies, the liability passes entirely to the co-borrower or guarantor.

Credit Card Dues And Consumer Loans

Credit card balances and consumer loans are typically unsecured and can only be recovered from the deceased’s estate. If there are no assets and the heir is not a co-holder or guarantor, the debt is written off.

However, if an heir was an additional cardholder, legal complications can arise depending on usage patterns and account ownership. The liability may depend on how the card was used and whether the additional cardholder benefitted directly.

Why Legal And Financial Advice Matters

Legally, creditors cannot force family members to repay debts unless there is a clear contractual obligation. However, some lenders may attempt to pressure the family, especially if they are unaware of their legal rights. This is why consulting a lawyer or financial advisor is strongly recommended when handling matters related to a deceased individual’s debts or estate.

Before any inheritance is distributed, all outstanding debts must be settled. If the estate is complex or the debts substantial, professional advice becomes essential. In some cases, a valid will or life insurance policy can shield heirs from unexpected liabilities and ease the financial burden.

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