What happens to your debts after you die?
In this lifetime, we all have our share of life's unanswered questions. Some can be as silly as “If love is blind, how can we believe in love at first sight?” Others are deep-seated such as “Did I make the right choice?” Fortunately, there are those we can answer before we “breathe our last.” That includes “What happens to our debts after we die?”
GoBear team asked the following questions from financial law experts for you.
Will my debts die with me?
Here is the morbid truth. You may have passed on, but your debt remains.
Article 774 of the New Civil Code of the Philippines states that “Succession is a mode of acquisition by virtue of which the property, rights, and obligations to the extent of the value of the inheritance, of a person are transmitted through his death to another or others either by his will or by operation of law.”
The provisions that follow further explains that this inheritance includes not just your property but also your rights and obligations unless extinguished by death.
The good thing is, it will not haunt your loved ones.
In Genato vs Bayhon et al. (G.R. No. 171035, August 24, 2009), then Supreme Court Chief Justice Reynato Puno said “The loan, in this case, was contracted by the respondent. He died while the case was pending before the Court of Appeals. While he may no longer be compelled to pay the loan, the debt subsists against his estate. No property or portion of the inheritance may be transmitted to his heirs unless the debt has first been satisfied.”
This means that your debts should first be paid before your heirs could determine and receive their share of inheritance from your estate.
The creditor, a bank, for example, may file a claim against your estate to collect the debt you owe. It, however, cannot ask for more than the value of their inheritance as explained in the case above.
What happens to the properties I value most?
Stay put. The Family Code of the Philippines, Rules of Court and Commonwealth Act No. 141 will take care of this for you.
These laws exempt some of your properties from being used to fulfill your obligations. Examples of which are your family home, necessary clothing, household furniture and utensils necessary for housekeeping, and even the books and equipment you use in your profession.
What is the responsibility of my co-maker or guarantor?
Your co-maker’s role is different from your guarantor’s.
A co-maker is obliged to pay the loan whether the principal borrower pays the co-maker back or not. This means the lender can request payment from the co-maker’s own money. However, the amount of payment is determined depending on the what the co-maker signed up for.
According to the New Civil Code of the Philippines, there are two types of obligations: joint and solitary. In a mutual obligation, a co-maker is required to pay only a portion of the amount the principal borrower failed to pay. If the contract states that the co-maker should pay 30% of the debt, the lender cannot collect more than that. If the agreement does not specify a percentage, it is assumed that the co-maker is willing to pay for half of the amount.
Meanwhile, a guarantor is only letting you borrow his or her financial status for you to secure a loan. When you die, your guarantor will first shell out his own money to pay for your debts. Afterward, he or she can now assume the role of the creditor and collect the loan from your estate. And, we’re back to square one.
How will I guard over my family from beyond the grave?
Although your family is not obliged to pay your debts using money from their own pockets, unsettled debts could cause your loved ones restless nights thinking of solutions on how to save your reputation while you rest in peace. Court proceedings and unpaid dues getting in the way of taking care of your estate is exhausting. This could be avoided.
If you are talking about credit card debts, Bangko Sentral ng Pilipinas (BSP) issued its Manual of Regulations for Banks (MORB) which prohibits banks from resulting in certain unfair collection practices. Such a method includes the use of threats, physical violence, profane languages, and false representation.
If you or your company has religiously paid for your social insurance program from the Social Security System (SSS), then your relatives will have money to claim after your death. This will depend on how significant your monthly contribution is. It will also be a big help if you have prepared for this by securing insurance which will provide your chosen beneficiaries with a tax-free payment when you die. This will at least take care of your funeral and burial.
You would not want your credit card bill to be written on your tombstone. It is not yet too late to settle your obligation. You may assume you are too young to think about death but the need for peace of mind requires no age. You can always check out bank facilities like personal loan and debt consolidation to settle all your borrowings in one account with lower interest rates and easy repayment schemes. Pay your dues on time to keep interests from piling up. We can also help you by doing the right thing in the first place – compare with GoBear and start choosing the right credit card for you.