We got a joint loan – now we’ve split who has to pay?

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Splitting up

What does a relationship break up entail for your finances?

We get asked the above question a lot, so we thought we’d clear up the debt law around joint loans, also about what it means being a guarantor on a loan or credit product.

If you take out a joint loan with someone, you are both ‘joint and severally liable’ for the repayment of the whole amount.

Joint loans

Let’s go through it with a few example scenarios for a joint loan of £10,000…

Scenario 1: Most simply, if you borrowed £10,000 with your partner and your partner passed away, you’d be expected to repay the outstanding amount, up to the whole £10,000 (plus the interest due).

Scenario 2: If you and your partner borrowed £10,000, and then your partner left you and went bankrupt with no assets and no income, you and you alone would be expected to repay the outstanding amount, up to the whole £10,000 (plus the interest due).

Scenario 3: If you and your partner borrow £10,000 and then your partner loses their job and has to take out an IVA, their part of the debt is included in the IVA. When the IVA is accepted by creditors the debt will receive a payment each month through your partner’s IVA but you are liable for all of the rest of the loan.

The bank cannot force you to repay more than was owed and even though your partner is making some payment through the IVA, you are liable for the rest of the whole amount borrowed. So if they had to pay 20p in the pound on the loan (20% in other words), you’d have to find the other 80% (plus the interest on that 80%).

In reality we come across many different scenarios with joint and several liable loans, so if there are issues with you or your partner being unable to pay we’d recommend you talk to us.

Loan guarantors

The situation with being a guarantor is fairly similar. Importantly, we’d advise you: Don’t act as a guarantor for any loan product for anyone else unless you’re in a position to be able to afford to repay the loan.

Why is this important? If the person who borrowed the money cannot repay it, the creditors will turn to the guarantor – you – for payment. This could leave you in debt trouble, through no fault of your own.

The same thing applies to additional card holders; if you have a credit card and you’ve given your permission for someone else to have an additional card on the same account, you are responsible for any spending they do on that card.

Joint accounts

We all know relationships can be very difficult; add a joint bank account into the mix and it can be even more fraught!

A joint bank account with an overdraft is just like a joint loan. If your ex-partner disappears and runs up bills on the joint account, the bank will hold you responsible for the debt’s full amount. Again, you have ‘joint and several liability’.

And hoping that you can argue that it’s your ex-partner’s fault doesn’t tend to work unfortunately; banks are unlikely to remove names from joint accounts. You may find some institutions more amenable than others but most banks don’t like to do it.

The bottom line

Our advice is this: before you take out a joint credit product you need to stop and think what would happen if you had to repay the full amount.

We hope your relationships do stay solid, and that any joint lending will never be an issue, but as we know from our clients, relationships do come to an end and it’s worth knowing where you stand when you’re financially, as well as romantically, connected.

Nobody has a crystal ball and we can’t predict the future with any relationship, or financial situation, but if you’re worried about joint debts in your name try our online debt advice too Debt Remedy or contact us.

Matthew worked as an IVA drafter prior to working in social media. In a former life he wrote scripts for Eastenders, Emmerdale and Hollyoaks. He has 3 chickens, 2 dogs and a rabbit.

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