You are protected from your guarantor loan if you go bankrupt. However the person who guaranteed it will still have to pay.
- What happens to a guarantor loan if you go bankrupt?
- Can you continue paying the loan?
- Can you pay off the loan beforehand?
- What of you are a Guarantor for someone else?
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What happens to a Guarantor Loan if you go Bankrupt?
A guarantor loan is an unsecured debt. As such it must be included if you go Bankrupt. As far as you are concerned it will be written off with all your other unsecured debts.
The problem however is that the person who guaranteed the loan is not protected by your bankruptcy. They will become liable to maintain the ongoing payments or settle the debt in full.
If your guarantor can afford to make the repayments there will be no problem. However if they cannot the loan company can take legal action against them to force them to pay.
If you go bankrupt and your guarantor canot afford to pay your guarantor loan their only option may be to consider starting a debt management solution themselves.
Can you continue paying a Guarantor Loan while you are Bankrupt?
To protect your guarantor you might consider trying to keep up the payments towards the loan after you go bankrupt. However it is very unlikely that you will be able to do this.
Any surplus income you have will have to be paid to the Official Receiver (OR) in the form of an IPA (Income Payment Agreement). You will not be allowed you to keep any of this to maintain an unsecured debt payment.
You could try to save money from your agreed budget so that you can pay the loan. However this is likely to be very difficult especially if the payments are large.
It is unlikely you will be able to protect your guarantor by maintaining payments towards a guarantor loan from your agreed living expenses once you are bankrupt.
Can you Pay Off a Guarantor Loan before going Bankrupt?
Instead of leaving your guarantor with the debt after you go bankrupt you might consider paying it off before you apply. However this strategy can be risky.
The problem is that other than making your normal monthly payments you are not allowed to pay off any of your creditors in preference to any others within 2 years of going bankrupt.
If you do and the OR decides you have made a preferential payment they will force the return of the money you paid. This will be taken by the OR. The creditor will then treat the debt as outstanding and can still go to your guarantor for payment.
Speak to us if you are considering paying off your guarantor loan before going bankrupt. We can advise on whether you would be making a preferential payment.
What if you are a Guarantor for someone else?
You might decide to go Bankrupt yourself because you are unable to pay your own debt. In this situation if you are a guarantor for someone else your responsibility for their debt will also come to an end.
Of course the person who you guaranteed the loan for can continue to repay their debt as normal. As long as they do so there will be no need for the debt to be involved in your bankruptcy at all.
However if they subsequently get into difficulty and cannot pay you are protected by your bankruptcy. If you are contacted by the guarantor loan company demanding payment you simply need to inform your OR. They will contact the creditor and deal with it on your behalf.
If the person you guaranteed a loan for fails to pay you will not be liable for the debt after you go bankrupt. This is the case even if your bankruptcy is already over by the time they default.
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