Will a Guarantor Loan be Written Off if I go Bankrupt?

Will a Guarantor Loan be Written Off if I go Bankrupt?

You are protected from your guarantor loan if you go bankrupt. However the person who guaranteed it will have to pay.

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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 can’t 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.

Need more advice about a guarantor loan and bankruptcy? Give us a call (0800 077 6180) or complete the form below.

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 does not pay you are not liable for the debt after you go bankrupt. This is the case even if your bankruptcy is already finished.

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22 thoughts on “Will a Guarantor Loan be Written Off if I go Bankrupt?

  1. June says:

    Bamboo Loans had been informed twice , firstly, about the proposed application for a Debt Relief Order and secondly, when they were told the Debt Relief Order had been issued. Surely they should have advised about the adverse effect this would have on the loan Guarantor If they had told me I may have taken another course of action. After contacting Bamboo today it is apparent they do not see it as their duty to mention the Guarantor.

    The Guarantor was in full time employment when the loan was taken out but recently had to give up work due to health issues and is now Universal Credit is her sole income. As she is unable to pay a lump sum or a large monthly payment, what are her options other than taking out her own debt solution, which she does not and should not have to do because of something that is not her fault. She has a good credit rating at present and does not want this to be affected. Can you please advise the best course of action.

    1. Hi June

      I am mostly surprised about StepChange. They really should have told you about the risks of starting a DRO if you have a guarantor loan…..

      I am afraid I can’t advise on whether Bamboo had a right to advise you regarding the implications of your DRO on your guarantor or not. I am not a solicitor. However it would seem that they would have a duty of care under the FCA (Financial Conduct Authority) principles of business that all regulated firms must follow in particular to treat customers fairly.

      In terms of what you can do next, unfortunately all you and your guarantor can do is raise complaints against bamboo. Given you have had to start a Debt Relief Order you may have an argument to say that Bamboo should never have lent you money in the first place because you were not in a position to be able to pay it back and they they should have done better affordability checks to establish that. As such you could raise an affordability complaint against them. If this is upheld then bamboo will be forced to remove all interest from the loan and your guarantor will be released from the loan. Your guarantor could also raise a complaint.

      I you don’t want to do that then the only option for your guarantor would be to agree a sensible repayment plan with Bamboo. They would need to get confirmation from Bamboo that this would not affect their credit rating.

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