Top News

If a credit card holder dies, can the bank recover the money from the family? What do the RBI's estate rules say, and what rights does the bank have over the bank balance and jewelry?  Find out your legal rights in simple language in this article.

Often, we wonder what happens if someone has taken a loan from a bank or used a credit card and suddenly passes away? What happens to that debt? Can the bank harass the deceased's family? Or can the bank seize the property, bank balance, or jewelry left behind by the deceased?

The answers to these questions lie in the Reserve Bank of India's (RBI) 'Estate' rules and the country's succession laws. Today, we will learn about this so that you and your family can confidently present your case to the bank in case of any unforeseen circumstances.

Can money be recovered from the family's pockets?

First of all, understand that if a credit card holder or borrower dies, their family (spouse, children, or parents) is not personally responsible for repaying the debt.

What is the rule:  The bank cannot force any legal heir to pay the money from their own pockets. So, if the bank's recovery agents do this, it is considered a direct violation of the rules.

What is the RBI's 'Estate' rule?

It is very important to understand 'Estate' here. It actually means the total assets left behind by the deceased, including their bank balance, fixed deposits, land and property, shares, and jewelry kept in the locker, etc.

Bank's right: According to the law, if the deceased has not repaid the bank loan or any outstanding amount, then the bank has the right to recover its money from that person's 'estate', i.e., their assets. Seema: But the bank can only recover as much money as the deceased left behind in assets. Let's say the credit card bill is ₹5 lakh and the deceased only left behind assets worth ₹2 lakh, then the bank will only be able to recover ₹2 lakh. The remaining ₹3 lakh will have to be 'written off' by the bank.  Also, if a legal heir claims that property, they will first have to pay off the deceased's debts.

What is 'Right of Set-off'?

Now let's talk about your biggest fear: Can the bank deduct money from the deceased's other accounts?

Right of Set-off: This is actually a power that banks possess. If the deceased has a savings account or FD (Fixed Deposit) in the same bank, the bank can deduct the outstanding credit card balance from that account without asking anyone.
Lockers and Jewelry: If the deceased has kept jewelry in a bank locker and there is an outstanding amount owed to the bank, the bank will not release those jewels until the outstanding amount is cleared. Legally, the bank can assert its 'lien' on that property.

Rights and Responsibilities of Legal Heirs

If you are the legal heir of the deceased, you should know these 3 things:

1. Yes, if you want to transfer the deceased's property (like a house or plot) to your name, the bank can easily claim that property. Legally, the debts are paid first, and only then can the remaining property be given to the heirs.
2. Remember that a nominee is only a 'trustee', not the owner. So, even if the nominee's name is on the bank account, the bank can still withhold that money to recover the debt.
3. Personal loans and credit cards are 'unsecured', so the bank cannot be too strict in these cases. But in the case of home loans or car loans, the bank can seize the house or car.

Can the bank harass the family?

The RBI has strict instructions that banks or their recovery agents cannot misbehave with the deceased's family. The rule of decency: The bank should give the deceased's family time to grieve.
Wrong approach: If bank officials exert pressure or threaten the family, they can complain to the RBI's Banking Ombudsman.

What should the family do in such a situation?

If such a situation arises in your family, take these steps:

Inform the bank: Immediately inform the bank with the death certificate so that the card or loan account is frozen and no further interest accrues.
Check for credit insurance: Many credit cards come with 'credit shield' or insurance coverage. If such insurance exists, the insurance company will pay off the entire outstanding amount, and the property will remain safe.
Negotiate a settlement: You can talk to the bank and request a 'One-Time Settlement' (OTS), in which the bank often waives the interest.

RBI's rule is clear

It is important to note that the RBI's rule is clear that the debt does not end with the death of the borrower, but it is also not imposed on the family. It is limited only to the deceased's estate. If there is an estate, the bank will have the first claim. If there is no estate, the bank's money is considered lost. Therefore, always share your loan and credit card information with your family and, if possible, get term insurance. (Note: This news is based on general information; for more detailed information, please consult a financial advisor.)

FAQs related to the news

1. Does the family have to repay the debt after the credit card holder's death?
No, the family is not responsible for repaying the debt from their own pockets.

2. What is the RBI's 'estate' rule?
The bank can only recover the outstanding amount from the property (estate) left behind by the deceased.

3. Can the bank deduct money from the deceased's account?
Yes, the bank can adjust the outstanding amount from the savings account or fixed deposit held with the same bank.

4. What rights does the bank have over the jewelry kept in the locker?
If there are outstanding dues, the bank can prevent the release of the jewelry and place a lien on it.

5. What to do if the bank harasses the family?
The family can file a complaint with the RBI's Banking Ombudsman.