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Tackling your debts

Borrowing together? Know what you're agreeing to...

Posted 01 March 2016

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One in five people are unaware that they could be responsible for repaying the whole of a jointly-held debt if their partner is unable or unwilling to pay their share.

 

Have you ever borrowed money with your partner or a friend? If you have, did you know that in some circumstances, if you borrow together with your partner, or anyone else you decide to apply with, you are wholly responsible for the monthly payments, if the other person is unable or unwilling to pay?

 

If you don’t, you're not alone. Research by DAC showed that up to one in five people are unaware that they may be responsible for paying the whole of a debt they’ve taken out with another person. In fact, the research, which included 2,200 people, showed that many could be signing up to joint borrowing thinking that they and their partner will be responsible for half of the debt each. Another 2% of the people involved in the research believed that if the other person didn’t pay, they’d only be liable to pay an amount that was in proportion to their salary.  

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This is worrying, as in most cases this is completely incorrect. The reality is, if you apply for credit with someone else, when you sign the application form, you are agreeing to becoming ‘joint and severally liable’ for the debt. If both of your names are on the application form, you are both individually liable for the whole of the debt. Let’s just think about that for a moment. If you apply for a mortgage, which is usually a huge financial commitment to make, and your partner leaves, you will be responsible for making the whole monthly payment yourself.          

And it doesn’t change regardless of who the joint borrowing is with. If you borrow with some friends, or other members of your family, the situation remains the same – if they aren’t able to pay, you will be the person the provider chases for the payment.

It also makes no difference how many people you originally applied for credit with. Imagine this scenario, you sign up to a loan with four of your friends and your payment is £20 per month. Sadly, all your friends lose their jobs and are now no longer able to pay their share of the debt. This means that you will now be responsible for the whole of the monthly payment, which totalled up is £100. If this happened to you, would you be able to pay? And what would you do if you couldn’t?

But, don’t forget that there are other things that are considered credit that you may not have thought of, like your utilities for example. So to help you with understanding your liability for shared debts in the future, here’s a list of the most common forms of credit and who would be left paying the bill if the other person can’t or won’t pay:

·         Secured credit – mortgages and car finance are the two main types of secured credit you’ll probably have heard of. If you both have your names on the application, you will both be jointly and severally liable for the whole debt. So, if one of you can’t pay, the other will become responsible for the whole amount.

·         Unsecured credit – credit cards, personal loans, store cards, catalogues and overdrafts all fall into this category. The first four types of unsecured credit are usually only taken out in one person’s name, so that person is wholly responsible. And don’t think that because your husband had your card, that he’s responsible for what he’s spent on it – he isn’t. If the account is in your name, it’s your debt. The second card does not indicate that the second person is now responsible for their portion of the debt, you’ve just been kind enough to let them spend on your account.

·         Overdrafts are a little different, as it’ll depend whose name the bank account is in. If it’s a joint bank account, then both of you are jointly and severally liable for the payment of the overdraft. If you have a bank account only in your name, then it’ll be just you the bank will be chasing for payment.

·         Council tax – who is liable here depends on what your relationship is to your partner and how you appear on the mortgage or tenancy documents. If you’re married, or living together as partners, you’ll both be joint and severally liable, regardless of whose name is on the bill. If you share the house with others, all those named as living at the property, who appear on the bill and have no exemption from council tax, will be jointly and severally liable.   

·         Utilities – gas, water and electric – for gas and electric, only the person named on the bill is liable to pay and your liability for paying only remains whilst you live at the property. Water is a little different as all the adults living in the property are responsible.     

·         Tax credits – if you applied for the tax credit jointly it will be classed as a joint claim and, strictly speaking, should be treated as if you are both jointly liable. However, if you need to pay anything back, it will usually be treated as if both of you owe half the amount.  

As you can see, there are lots of instances where you’ll be expected to pay back the whole amount you took out with another person if that person decides to leave you in the lurch. And this is why it’s so important to think very carefully before agreeing to borrowing with anyone. 

As most joint borrowing is done by married couples, here are a few tips on how you can try to stop any issues with joint debt, if you find yourself single:

Whether you have anything to worry about can depend on whether your split was amicable or not. But, just to put your own mind at rest, and to tie up the loose ends of your old relationship, you may want to cancel any cards that your partner has on your accounts, like a second credit card for example. And visit your bank and split out any joint bank accounts you have too.  It’s also a good idea to chat with your ex about who is going to take over the payment of anything you are jointly liable for.

If your split isn’t so amicable, you really need to get your finances separated as soon as possible. Cancel all second cards, and get the bank to freeze your account as soon as possible, then open a new account in just your name. Another thing you may want to think about is changing any passwords that your partner may know, for example to your PayPal or eBay accounts if you have them.

If one of you moves out of the home you’ve been sharing you should also tell the local council authority about the changes to your living arrangements.  And, if you are in receipt of any benefits, you need to tell the appropriate authorities about the changes to your situation. You should do this regardless of whether you jointly applied for the credit or not. This is because a partner moving out is classed as a change in circumstances, which will probably prompt a review of your circumstances.     

I’ve been left with all the debt to pay, I can’t afford it, what can I do?

Sadly, some people find themselves in this situation, so lastly we thought we’d cover what you can do about it, if you find yourself in this situation. When you signed the agreement to take the credit, you agreed to be held solely responsible for the debt, should the other person not be able to pay their half. If you’re unsure of your liability towards the debt, you should be able to find the clause covering being jointly and severally liable in your terms and conditions. So, whilst it may seem, and is in a lot of cases, unfair, in law there isn’t much that can be done.     

If you find that being held wholly responsible for a debt that you took with someone else has left you with problem debt, you should think about doing something about it. You could look at taking a debt solution as it could help you deal with the debts you have, whilst allowing you enough money to pay for your priority and essential bills.

 

If you’re in this situation, why not contact us for a chat. You can use the buttons on the left of the page to get started.     

by Shelley Bowers

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To find out more about managing your money and getting free debt advice, visit Money Advice Service, an independent service set up to help people manage their money.