You are protected from your guarantor loan if you go bankrupt. However the person who guaranteed it will have to pay.
Included in this article:
- What happens to the guarantor loan?
- Can you continue paying it?
- Can you pay off the loan beforehand?
- What of you are a Guarantor for someone else?
Rather speak to a person? Call 0800 077 6180 or fill in the form below and we’ll call you
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.
Where 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.
Struggling to get your head round all of this? We can help. Call us (0800 077 6180) or complete the form below. The advice is free and confidential.
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.
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.
Need help to go bankrupt? Give us a call (0800 077 6180) or complete the form below. The advice is free and confidential.
Arrange a call with a Bankruptcy Expert
Privacy Policy
Your information will be held in strictest confidence and used to contact you by our internal team only. We will never share your details with any third party without your permission.
Hi I taken a loan out less then a month ago, my brother is the guarantor or the loan, how ever he filed himself for bankruptcy.
My situation of paying of the loan is tough. If worse comes to worse and I cannot make payment, will my credit file be completely damaged. ?
Regards
Hi Mo
There are a couple of things to mention about your situation:
First. If you stop paying your loan then yes your credit rating will be negatively affected. Normally the loan company will issue a default notice against you. This will remain on your credit file for 6 years. Your credit rating will be poor during this time meaning you will find it difficult to get new forms of credit. After this time your credit rating should start to improve again (given you have no other credit issues).
Second. If your brother has now gone bankrupt then if you do not pay your loan he is protected. Even though he is a guarantor the loan company cannot chase him for the money. It would be dealt with as part of his bankruptcy. However his bankruptcy does not protect you. The loan company can still chase you and take legal action against you to try and collect their debt. As such if you cannot make the payments please contact us and we would be happy to give you advise about using using a debt management solution of your own.
Hi.i have a loan and I’m not able to pay.what I can do?
Hi Marian
If you are struggling with a guarantor loan and end up not being able to pay it the loan company will demand payment from your guarantor. The only way to stop this is to continue paying them.
If your guarantor can afford the payments on your behalf then your options will depend on your personal circumstances and the amount of debt you owe in total. Bankruptcy might be a sensible way forward but you could also consider an IVA or a debt management plan.
If your guarantor is unable to pay the debt on your behalf this is obviously more of a problem. If you have other debts you are paying you might be able to reduce those payments with a debt management plan. This would perhaps free up the cash you need to maintain the guarantor loan? If this is not possible then the only option is for you both to consider a debt management solution.
Hi
I’m applying for dro for my own debts. I’m a guarantor for a loan which the borrower can no longer afford to pay nor can I. I’ve added that to my dro application. Does that mean that both parties will no longer be liable for the loan? I’m with stepchange and they have agreed to add the loan to the dro application.
Hi Stevie
If you do a Debt Relief Order (DRO) (which would have to include this guarantor loan by the way) this will only protect you. The other party who actually borrowed the money will still be liable for the debt and the loan company can still use enforcement action against them. If they want protection they will have to carry out their own debt management solution. To re-iterate your DRO will not protect them.