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

It’s safe to assume, most of us have experienced a breakup. Granted though, some are worse than others.

Think back to your first heartbreak and feeling as though you’d never be happy again while listening to Adele’s album on repeat…anyone? Just me then!

As we get older, things unfortunately tend to get more complicated as we don’t just share mix tapes (showing my age slightly) but houses, holidays, bills, bank accounts and everything in between.

a couple facing each other

But, what happens to joint finances or joint debts if your relationship comes to an end?

First, let’s take a look at the different types of joint debts.

 

What are joint debts?

Joint debts can include:

When it comes to credit card debt, there’s no such thing as a joint credit card. You can have additional card holders, but they won’t appear on the agreement and ultimately aren’t responsible for paying back any of the balance.

A similar type of debt would be a guarantor loan. This is where another person agrees to pay the loan in full if you’re unable to, which is a risky move to take. Guarantor loans are usually targeted at people with a poor credit rating and they cost a lot more to repay due to higher interest rates and other charges.

We’d always advise not to guarantor a loan for anyone unless you are 100% certain you can afford to repay the loan yourself.

 

Joint debts vs. sole debts

The key difference on a joint debt is that two names will appear on the credit agreement. You’re both equally liable for the full amount, not just your share or half, and regardless of who spent what originally. Legally, this is called being ‘joint and severally liable’.

A few things to keep in mind about joint and several liabilities:

• It applies to bills like your council tax or water
• It applies to overdrafts, also repayable ‘on demand’

When you take out a joint debt you link yourself to that person financially. This is done through your credit file. If one of you can’t (or won’t) pay, then both of your credit files can be affected. Equally, the other person’s bad credit score can affect yours which is why money and debt can add so much stress to a relationship.

However, there is a silver lining: if the debt is well managed then you’re both rewarded.

 

How are joint debts affected by different debt solutions?

Let’s look at what would happen to a £1,000 joint loan if your partner left, went into a debt solution, and was no longer paying towards the debt.

– Bankruptcy

If your ex-partner goes bankrupt, your joint debt wouldn’t be included in their bankruptcy. You would become responsible for repaying the remaining balance of the loan.

– Individual voluntary arrangement (IVA)

If your ex-partner takes out an IVA, they’ll make some payments towards the debt. However, it might be that for every £1 in the loan they only pay 20p. That would mean you’d have to cover the other 80%.

– Debt management plan (DMP)

If your ex-partner sets up a DMP they can add a joint debt such as a loan to their plan. The creditor will then receive a fair share of the monthly DMP payment. This is likely to be lower than the original payment amount and the creditor will look to you to make up the difference every month so the total payment is covered.

 

There’s no cure for a broken heart

three friends sharing ice cream

While we can’t promise your relationship will last forever, we do know that if it doesn’t, your heart will mend in time and we hope you have friends and family (and ice cream) to support you through it.

We know it’s pessimistic but it’s a good idea to consider if you can afford the repayments for joint debts on your own in case the worse should happen. If you’re not sure, check out our guide on how to set up a budget.

And, if you’re not totally comfortable with the idea of being tied to someone financially, it’s OK to say no.

 

What do you think?

Are you concerned about debts you have with a partner or ex-partner? How did you approach setting things up such as joint bank accounts or loans?

Let us know in the comments.

Posted by in Living with debt

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