The loss of a loved one brings both emotional grief and practical concerns about managing affairs like car loans. At Cary Estate Planning, we often reassure clients that debt typically remains with the deceased person’s estate rather than transferring to family members.
“Generally speaking, the debt will stay with the estate of the person who has passed away in most instances. This provides important protection for families who are already dealing with loss.”
However, there are important exceptions to this general rule that North Carolina families need to understand. Car loans fall into a special category of debt called “secured debt.”
“If a debt is secured by real estate or by another type of asset or collateral, the debt will stay attached or secured to that asset even after the asset passes to other beneficiaries. The most common secured debts are mortgages attached to homes and auto loans attached to vehicles.”
This means that while you personally might not be responsible for the loan, the debt follows the vehicle itself. If you inherit a car with an outstanding loan, you essentially have three choices:
While most debts stay with the estate, there are specific situations where you might become personally responsible for a car loan after someone’s death:
If you co-signed the auto loan with the deceased, you’ve already accepted full legal responsibility for the debt. The lender can (and likely will) look to you for continued payments, regardless of whether you take possession of the vehicle.
Similar to co-signing, if you were a joint account holder on the loan, you’re fully responsible for the remaining balance.
North Carolina is not a community property state, which is actually beneficial in this situation. In community property states, surviving spouses might automatically be responsible for debts incurred during the marriage.
North Carolina does have what’s called the “doctrine of necessaries,” which our clients often don’t know about until we explain it.
“Another exception is what we call the doctrine of necessaries, which is a North Carolina law specifically that requires spouses to be liable for certain debts of their spouse. The most common instance of this is food and shelter-related expenses and medical-related expenses.”
While car loans don’t typically fall under the doctrine of necessaries, there could be exceptions if the vehicle was essential for obtaining medical care or other necessities.
When someone passes away with outstanding debts in North Carolina, the estate goes through a specific process:
For secured debts like car loans, the process is slightly different. The lender has a security interest in the vehicle itself, which gives them certain rights regardless of the probate process.
During our Strategy Sessions with families handling a loved one’s estate, we typically present several practical options for dealing with an outstanding car loan:
If the vehicle has sentimental value or is needed by a family member, continuing the loan payments may make sense. The lender may allow you to assume the loan or require refinancing in your name.
Many of our clients choose this option when the car is in good condition and the loan terms are favorable. We help them communicate with lenders to make this transition as smooth as possible.
If no one needs the vehicle or continuing payments aren’t feasible, selling the car to pay off the loan is often the cleanest solution. If the sale generates more than the loan balance, the excess goes back to the estate for distribution to heirs.
When the loan balance exceeds the vehicle’s value (being “underwater” on the loan), surrendering the vehicle to the lender might be the most practical option. However, be aware that the lender may file a claim against the estate for any deficiency if the car sells at auction for less than the loan balance.
At Cary Estate Planning, we understand that every family’s situation is unique. When clients come to us with concerns about handling debts after a loved one’s passing, we take time to understand their specific circumstances.
Our process begins with a Discovery Call to assess your situation, followed by a Strategy Session where we can explain options specific to your family’s needs. We’ve helped hundreds of families throughout Cary, Raleigh, and Chapel Hill navigate these situations with confidence.
The best gift you can give your loved ones is clarity about your affairs. Through our comprehensive estate planning process, we help clients:
By addressing these issues proactively, you can prevent confusion and stress for your family during an already difficult time.
If you’re dealing with a loved one’s estate that includes an outstanding car loan, or if you want to prevent these complications for your own family in the future, we’re here to help.
Contact us today to schedule your Discovery Call and take the first step toward clarity and peace of mind.
This article provides general information about car loan responsibilities after death in North Carolina and should not be construed as legal advice. For guidance specific to your situation, please schedule a consultation with our estate planning team.
Paul Yokabitus is the CEO and Managing Partner of Cary Estate Planning, a Cary, NC, estate planning law firm. With years of experience in estate and elder law, he has zealously represented clients in various legal matters, including estate planning, guardianship, Medicaid planning, estate administration, and other cases.
Paul received his Juris Doctor from the Campbell University School of Law and is a North Carolina Bar Association member. He has received numerous accolades for his work, including being named among the “Best Attorney in Cary” in 2016 and 2017 by Cary News and Rising Star in 2020-2023 by Super Lawyers.