Bankruptcy is often seen as the last resort, but for some people it is simple the most suitable solution. One concern though is what happens to joint debts when going bankrupt.

Jump to article contents:

• Joint debts – what is joint and several liability
• Can you keep paying joint debts during Bankruptcy
• Options available to the other account holder
• Joint mortgage debt and bankruptcy

Concerned about joint debts or considering Bankruptcy? Call 0800 077 6180 or complete the form below to speak to one of our experts.

Joint debts – what is joint and severable liability

It is important to understand that Bankruptcy only protects the person going bankrupt. The process will not protect the bankrupt’s spouse or partner with whom there are joint debts.

Taking a debt in joint names means that both parties have joint and severable liability for its repayment. This means that if one person then goes Bankrupt the other party remains responsible for the full outstanding amount.  They will automatically become responsible for paying the full outstanding balance.

There is no way around this situation. If you declare bankruptcy, you cannot leave out joint debts and continue to pay these. All of your debts must be included in the process.

Debts that seem joint may not be. For example, a credit card with a second card holder is not a joint debt. The second card holder would not be liable to repay any debt incurred.

Can you keep paying joint debts during Bankruptcy

If you declare yourself bankrupt, all your unsecured debts must be included. All the creditors must be treated the same, so you cannot continue to pay one debt and not the others. You must plan how any joint debts will be paid by the other account holder.

If they can maintain the required monthly repayment out of their own income then this is a sensible way forward. However, more often than not this is not possible. As such they may also have to consider a debt management solution themselves.

One option is for the joint account holder to also declare themselves bankrupt. However this could be using a sledge hammer to crack a nut. Other options such as a debt management plan or individual voluntary arrangement should also be considered.

Make sure there is a plan in place before you declare Bankruptcy. The creditors will pursue the full amount of the debt from the joint account holder once you are bankrupt.

Options available to the other account holder

If, as is often the case, the joint account holder cannot afford the full monthly repayments there are a few options. Bear in mind the joint account holder only has to cover the payments whilst you cannot. A bankruptcy only lasts for 12 months with possible payments for up to 3 years.

Often bankrupts do not pay anything monthly as they cannot afford to. The joint account holder would only have to cover the payments whilst you cannot pay. It might be that a family member can help out for this time until your bankruptcy commitments are concluded.

If this is not possible, a temporary solution could be a debt management plan. This is an informal solution where creditors will agree to reduce monthly payments and often freeze interest and charges. They are willing to do this as in the end they will still get their money back; no debt is written off.

If the joint account holder has several other debts then a formal route such as an IVA or Bankruptcy may be required. We can advise you on all these options so you can make an informed choice.

Joint mortgage debt and bankruptcy

A mortgage debt is a secured debt and cannot be included in a Bankruptcy. You must maintain the monthly mortgage payments as part of your living expenses budget. Your mortgage lender would be informed, but they would not take action unless you stopped your payments.

Unlike an IVA, if you have equity in your home then a Bankruptcy process may include you releasing your equity for the creditors. Only your share of the equity would be affected. The share owned by the joint mortgage holder remains theirs.

The problem is how the Bankruptcy releases your share of the equity. It might be that the only way to do this is to sell your home. The joint mortgage holder would not be able to prevent this from happening.

You might want to consider avoiding bankruptcy by selling your home and using the equity to settle your debts. If you are offering a lump sum, creditors will often accept significantly less than the actual balance.