Joint Debt and Bankruptcy
- 28 Oct 2021
Joint debt is included in Bankruptcy. However only the person who has gone Bankrupt is protected. The other account holder is still liable.
Included in this article:
- What is a joint debt?
- Can a joint debt be included in Bankruptcy?
- What if the other account holder cannot afford to pay?
- How is a joint mortgage affected?
Rather speak to a person? Call 0800 044 3194 or click here to complete the form below and we’ll call you
What is a Joint Debt?
A joint debt is one which two people are liable for. The most common types are a joint overdraft, personal loan or mortgage. When the debt was originally taken both parties signed an agreement to say they would both agree to repay it.
Both parties are liable for the full amount of the loan or debt. This is known as joint and several liability. If one party is unable to pay the other must still pay 100% of the outstanding balance.
Some debts which you might think are joint are actually not. A good example of this is a second card holder on a credit card account. The second card holder is not liable for the debt. The main card holder must repay the whole balance.
Both parties are liable for 100% of the outstanding balance of a joint debt. If one person cannot pay the other must pay the full amount not just their “half”.
Can a Joint Debt be included in Bankruptcy?
If you go Bankrupt you must include all of your unsecured debts. As such not only can a joint debt be included it must be included.
Once you are Bankrupt you are no longer allowed to continue making payments towards the debt you owe including any in joint names. However as far as the creditor is concerned the debt is not written off.
The other joint account holder remains liable for the repayments. They are not protected by your bankruptcy and will have to continue paying until 100% of the outstanding balance is repaid.
You will not be allowed to include a specific amount in your living expenses budget to fund the ongoing payment of joint debt.
What if the other account holder cannot afford to pay the Joint Debt?
If the other party is able to continue paying the joint debt after you go Bankrupt there is no problem. However they are only allowed to make the payments from their own income.
Where they do not have sufficient income to do this they may have to consider starting their own debt management solution. This could be in the form of a Debt Management Plan, IVA or even going bankrupt themselves.
You might consider trying to maint the payments towards a joint debt by making savings from your agreed living expenses budget. This is not recommended as it will put you under considerable financial pressure.
How is a Joint Mortgage affected by Bankruptcy?
Your mortgage is a secured debt and cannot be included in bankruptcy. You must include a provision in your living expenses budget to ensure you can continue to pay the monthly payment.
As such even if your mortgage is in joint names it will not directly affected if you go bankrupt. Having said that the othe joint owner is still likely to be affected.
You may have to release your share of any equity in the property. If you are unable to do so in any other way the Official Receiver may have to force its sale. It is unlikely the other joint owner could stop it this were it to come to it
Where a joint property has to be sold the other joint owner’s share of any equity is protected. Only your share can be used to pay your creditors.
Hi,
I had a joint loan with an ex 15 years ago. She went bankrupt in 2010 and left me with the loan. I’ve paid it for the last 15 years and have asked her for a contribution, as I’m sick of paying off her debt. She said it was included in the bankruptcy and no longer has to. The lender says the loan is still in joint names and still goes on our credit files. So I don’t pay. It will negatively affect BOTH our credit files.
As she is no longer bankrupt, where do I stand. I offered a lower amount to the lender to take me off and clear the loan. But they said as the loan has been paid on time they wouldn’t accept it. I’m sick of paying it, as it was her debt and I’m sick of being linked to that immoral tramp. So feel stuck.
Hi John
I’m afraid I don’t have any good news for you. Given the loan is in joint names, you are liable to pay the full balance. Your ex is no longer liable because she went bankrupt. As such she is correct, legally she does not have to make any further payments towards this debt.
Making an offer to settle the debt is a good idea. However, normally the creditor will not consider this unless the loan has first gone into default. In order for this to happen, you would need to stop paying it. After 2-3 months it would be passed to the creditor’s collections department who might then agree a settlement. However, as you say, this will affect your credit rating. Unfortunately the only way for you to prevent that is to continue paying the loan as per the agreement.
My ex husband is still on our mortgage although I have paid it for the last 4.5 years. He is declaring himself bankrupt, where does that leave me and my children
Hi Michelles
If your ex goes bankrupt and his name is still on the title and mortgage of your property, the official receiver will consider that he still has a financial interest in it. This is unless you have a court order as part of a divorce stating that 100% of the property is now yours.
If you don’t have such an order, what happens to the property will depend on the amount of equity in it.
The starting position will be that any equity is split 50/50 between you and your ex with the Official Receiver laying a claim to his half. You might be able to argue that you have a slightly larger claim on the equity as you have been paying the mortgage. However, this will depend on whether your ex has been paying you maintenance.
Once the value of your ex’s share is agreed, you will have the option of paying the OR the equivalent amount to buy it back. There is only a problem, if the value of your ex’s share is significant (over £10k) and you can’t afford to buy it back. In these circumstances there is a risk that the property would be sold.
You can read more about jointly owned property and bankruptcy here: Joint property and bankruptcy
Given this situation, if the equity in the property is significant, it may not be a good idea for your ex to go bankrupt.