If a borrower passes away, do their debts simply disappear? The answer is no. Under the law, debt obligations do not terminate upon the debtor’s death but may be transferred to their heirs within the scope of the inherited assets. Many families find themselves confused or even embroiled in disputes because they are unclear about who is responsible for repayment, how the repayment should be made, and to what extent. This article aims to clarify the rights, obligations, and necessary steps when the borrower has died—helping individuals protect their legitimate interests.
1. General Principles
According to Article 463 of the 2015 Civil Code, a loan agreement is defined as an agreement between parties whereby the lender delivers assets to the borrower, and upon maturity, the borrower must return to the lender assets of the same type, quantity, and quality. Interest is only payable if agreed upon or provided by law.
From the moment of receiving the assets, the borrower becomes the lawful owner of such assets.
2. Borrower’s Debt Obligations
Vietnamese civil law clearly stipulates the obligation to repay the lender, as set out in Article 466:
- If the loaned asset is money, the borrower must repay the full amount upon maturity. If it is an object, the borrower must return an object of the same type, quantity, and quality, unless otherwise agreed.
- If the borrower cannot return the object, they may repay in cash equivalent to the value of the borrowed object at the place and time of repayment, subject to the lender’s consent.
- The place of repayment is the residence or headquarters of the lender, unless otherwise agreed.
Regarding interest on the loan:
The provisions in Clauses 4 and 5 of Article 466 and Article 468 of the 2015 Civil Code apply, and are further guided by Resolution No. 01/2019/NQ-HDTP, which clarifies the legal framework for interest, penalties, and late payment.
Specifically, Article 5 of the Resolution determines interest and penalties applicable to loan agreements that are not credit contracts:
- For interest-free loan agreements, if the borrower fails to repay or repays only partially upon the due date, then at the lender’s request, the Court may determine that the borrower must pay:
Interest on overdue principal = (Overdue principal) × (50% of the 20% per annum interest rate cap) × (Duration of late repayment)
- In the case of interest-bearing loans, where the borrower fails to repay or only partially repays the loan on time:
Interest on outstanding principal within the loan term = (Unpaid principal) × (Agreed interest rate or 50% of the 20% per annum interest rate cap) × (Duration of unpaid term)
- If there is a delay in repaying the interest on principal within term, the borrower must also pay interest on the unpaid interest, corresponding to the delayed period, unless otherwise agreed:
Interest on unpaid interest = (Unpaid interest) × (50% of the applicable interest rate cap at the time of repayment) × (Duration of late payment of the interest)
- For the case of determining interest on overdue principal when the loan agreement includes an interest clause:
Interest on overdue principal = (Overdue principal) × (Agreed interest rate or 150% of the agreed interest rate) × (Duration of late repayment)
3. Who Must Repay If the Borrower Dies?
A deceased person’s obligations do not automatically terminate but are passed on to their heirs, as stipulated in Articles 614 and 615 of the 2015 Civil Code.
Accordingly, from the moment the inheritance process is initiated, any lawful heir is automatically vested with the rights and obligations of the deceased, including outstanding debts. Heirs may not refuse the inheritance simply to avoid fulfilling the deceased’s obligations (Article 620).
Thus, the heir must fulfill the deceased’s financial obligations within the limits of the inherited estate, in accordance with Article 615:
- Heirs are responsible for performing obligations of the deceased within the value of the estate received, unless otherwise agreed.
- If the estate has not been distributed, the obligations shall be fulfilled by the estate administrator under an agreement among the heirs and within the estate’s value.
- If the estate has been distributed, each heir shall fulfill the deceased’s obligations in proportion to their share, not exceeding the value received, unless otherwise agreed.
- If a non-individual heir receives an inheritance under a will, they must also fulfill the deceased’s obligations as if they were an individual heir.
Note:
- If an heir intentionally conceals or fails to declare the inheritance, the lender may request the Court to reallocate the estate. The statute of limitations for such claims is 3 years (Article 429), or may request asset seizure through enforcement proceedings to secure repayment.
- Obligations must be settled in priority order, with funeral expenses,… and similar debts being settled first, followed by other personal or legal obligations (Article 658).
Understanding the legal implications of debt repayment after the borrower’s death is essential not only to safeguard one’s own rights and those of one’s family but also to demonstrate respect for the law and responsibility for outstanding obligations. This article aims to resolve common concerns and guide readers in managing inheritance and financial duties more confidently.
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1. Lawyer Vu Thi Phuong Thanh, Ha Noi Bar Association
Email: vtpthanh@tlalaw.vn
2. Lawyer Tran My Le, Ha Noi Bar Association
Email: https://tlalaw.vn/
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