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How does bankruptcy affect joint debts

Published: 08 July 2024

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Going bankrupt means your unsecured debts are written off. But what happens if you have joint debts? What if you and your partner took a loan in joint names or have a joint overdraft?

All the information you need about going bankrupt and joint debts is available in this guide. Find out how the other account holder is affected and the actions they can take.  

Contents

What happens to joint debts when you go bankrupt?

When you go bankrupt, any joint debts you have in your name with someone else are automatically included. Your bankruptcy protects you from the debt. In other words, you no longer have to pay it.

However, it is really important to understand that the other person named on the account still has to pay the balance. They must continue making the monthly payments.

Joint debts are normally bank overdrafts and loans and utility bills. Normally credit card debts are not joint debts. How do you know if one of your debts is in joint names? Both account holders are named on the statements. Id in doubt, contact the bank and ask.

It is not possible to include any money in your living expenses budget to pay the joint debts. The payments will have to be made out of the joint account holders share of your surplus income.

How is the other joint account holder affected?

Even though your joint debts are included in your bankruptcy, this does not protect the other account holder. They are still responsible for keeping up the payments.

It’s not just their half that they have to pay. They will have to pay 100% of the outstanding debt. In other words, the bank is legally entitled to chase them for the whole balance owed.

If the other person named on the joint debt can’t pay or refuses to pay, debt collection actions can be taken against them by the creditor. Ultimately this will affect their credit rating and could lead to legal action.

How is the other joint account holder affected when it comes to joint debts

What if the other account holder can’t afford to pay the joint debts?

Where the other joint account holder can’t afford to pay the debt, there are a number of options available.

They could agree a reduced payment plan with the creditor so they can pay off the balance over an extended time. Alternatively, they will need to decide whether they should also go bankrupt themselves or use another debt management solution.

Can you leave joint debts out of your bankruptcy?

You can’t leave any unsecured debt out of bankruptcy. They are automatically included whether or not they are listed on your application. This includes joint debts.

That said, even though any joint debts with your name on are included, it doesn’t mean the other joint account holder also has to stop paying the debt. In fact it’s quite the opposite.

The other person named on the debt still has to continue making the payments.

Unfortunately, you are not allowed to make any provision in your living expenses budget for this. They must maintain the payments out of their share of any surplus income. That said, once your living expenses budget is accepted, you can still help the other account holder pay the debt by using money from elsewhere in your budget if you can afford to do so.

Wondering what to do about joint debts when you are bankrupt? Speak to us about the options for managing the payments.

Joint mortgage and bankruptcy

Joint mortgages are not treated in the same way as unsecured joint debts.

If you have a mortgage in joint names with someone else, you do continue making the monthly payments after you have gone bankrupt. If you stop making the payments, your property will be at risk of repossession.

For this reason, it is perfectly acceptable for you to include the total monthly mortgage payment in your bankruptcy living expenses budget (just in the same way as you would do if you were paying rent).

Remember, your home could still be at risk if you go bankrupt. The Official Receiver will need to release your share of any equity in the property.

Joint mortgage holders must get advice before going bankrupt – speak to us today to find out how you can protect your home if you go bankrupt.

Joint debts with mortgage and bankruptcy

Joint council tax debts

If you are living with a partner, it would be quite normal for you to have your council tax bill in joint names. Where this is the case, you must continue to pay the bill as normal.  

This is because although you are no longer liable for the current year’s bill or any arrears, your partner (the other joint account holder) is not protected by your bankruptcy. As such, they remain liable for 100% of the debt.

You will be allowed to include an amount in your bankruptcy living expenses budget to cover your monthly council tax payment.

What happens if you have a joint overdraft?

If you have a joint overdraft on your bank account, it is treated like all your other joint debts.

In other words, your bankruptcy protects you, but the other account holder still has to pay back the outstanding balance.

If the joint overdraft can’t be repaid before you go bankrupt, you will normally both need to open alternative bank accounts before the bankruptcy process starts. The other account holder will then need to put a payment plan in place to pay off the debt which they will still be liable for.

Where the other account holder is unable to afford to repay the overdraft, you could help them by using some of the money from your agreed living expenses budget. Failing that, they may need to consider starting a debt management solution themselves.

   Written by James Falla

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