A reader asked:
I have received a letter saying we still owe £4,000 in council tax. The debt was included in my bankruptcy a few months ago but they are chasing my wife for the full amount, what should we do?
This article looks at what happens to joint debts which are unsecured, not mortgages or secured loans. It covers all three forms of insolvency – bankruptcy, DROs and IVAs – because the answers are much the same for unsecured debts in all of them.
Common types of joint debts
A joint debt is a debt which has two people’s names on it, where they are both responsible for the full amount of the debt. Common joint debts include:
- overdrafts on a joint bank account;
- loans (including guarantor loans); and
- council tax.
With overdrafts and loans, both people have to have agreed to the credit at the start. If your partner – or your ex – has taken out a joint debt with your name on it that you didn’t know about, or that you were pressured into agreeing to, you need advice on your options, ask at your local Citizens Advice.
The solvent person will be asked to pay the debt
Joint debts have to be included in insolvency. You can’t ask for a debt to be left out on the grounds that the other person will carry on paying it.
When a joint debt is included in an insolvency, the creditor will ask the solvent person to repay all the remaining debt – not just “their half”. For a loan, this can be just carrying on making the normal monthly payments.
In an IVA, the creditor will receive some payments, called “dividends”, from the IVA. These will reduce the amount of debt the other person has to repay. For example, if there is a joint loan with £4,000 outstanding, and the IVA is giving “25p in the £” to the creditors by the end, the lender will receive £1,000 from the IVA and the other person only has to repay £3,000.
In bankruptcy, creditors rarely get any money back. This usually only happens if there is a house with a lot of equity that is sold. Normally the creditors get nothing, so the other person has to repay the full amount of a joint debt.
In a DRO, the creditors will always get nothing as the person in the DRO doesn’t have to make any payments at all. So the other person has to repay all of a joint debt.
The solvent person’s options
It is always a good idea for someone to look at their own financial position if their partner opts for any of the types of insolvency. If they can’t easily manage their own debts, they need to consider their debt options, taking into account:
- that their “own debts” will include any previously joint debts that are going to become their full responsibility; and
- if their partner is having to make monthly payments, for example to an IVA, they may have to pay more of the household expenses than before, leaving less money to repay their own debt.
Small joint debts may not make much difference, but larger ones can tip what was manageable debt over into being unmanageable.
The reader who asked question at the start said his wife’s only income was disability benefits. She had some small credit card debt which wasn’t a problem, but the addition of the council tax arrears means she should probably look at the option of a DRO.
What about credit records?
With joint loans or an overdraft with someone who is going bankrupt, entering an IVA or a DRO, your credit records are “financially associated” with your partner’s. So their insolvency is going to harm your credit score.
Perhaps you had already been paying a joint loan before your partner entered an IVA. Even though you carry on paying it afterwards, with no missed payments or defaults, your credit rating will still be affected by their IVA.
The only way round this is for you to repay all the joint debts as quickly as possible – ideally before your partner’s bankruptcy, DRO or IVA starts! When all joint debts are settled, you can ask for the financial link with your partner to be deleted. See for example Experian’s form to request this.
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Andrew says
Hi quick question.
Can the Insolvency Practioner during bankruptcy request to see a joint account? Only one person is bankrupt and the other isn’t.
Also. When doing an expenditure if one partner who isn’t bankrupt earns nothing as they aren’t working do they just go off the bankrupt persons earnings?
Sara (Debt Camel) says
I’m sorry I missed your question and so am replying very late…
Yes the official receiver can ask to see joint bank account statements. It’s worth adding that if you have a joint bank account you should really close it and switch to two separate accounts before going bankrupt, otherwise one partner’s bankruptcy is going to affect the other partner’s credit record.
If the person going bankrupt has a partner who isn’t working, then when their case is being assessed for an IPA, all the household expenditure will be included. I hope that answers your concerns as your question was a bit oddly worded.
Jim says
And please, please, please, do discuss your debts with your partner if you’re wanting to go into an IVA (or anything else for that matter).
Sara (Debt Camel) says
Good point!
Ben says
I’m asking for my new partner she is separated
both her and her ex husband are with step change hes applied for a DRO 2 of the debts are joint she struggles to pay step change now but she is keeping up with her repayments he is picking and choosing when to pay step change does the insolvency agency need to contact her to inform her that her ex partner has applied for a DRO due to it being a joint debt.
Sara (Debt Camel) says
“does the insolvency agency need to contact her to inform her that her ex partner has applied for a DRO due to it being a joint debt.” no – but she knows anyway, so why does this matter?
If she is struggling, perhaps she should be looking at her other options? I suggest she talks to StepChange about this – she should have her DMP separated from his DMP and have her situation reviewed.
Susan says
My son has just found out that his ex partner has an IVA. This includes a debt for a loan she took out while they were together and he co signed. He has received a load of statements , backdated, with an apology saying they should have informed him and sent him statements. Is there anyway he can get his name removed from this IVA?
Sara (Debt Camel) says
His name isn’t on her IVA.
His credit record will be affected by her IVA until there are no joint debts, so he has to pay the outstanding loan.
Jennifer says
Hope ur ready for this.
I have dept of £19000
My husband £16000
Joint £1000
He earns a wage of £1600
I don’t work as have 4 children 1-12 years. We get UC £1000 and child benefits £200 roughly.
I was told to get IVA of £110 Each
I have been told we cant do dro as dept is too much. However my husbands defo isn’t. I was told that the benefits would be included in the incomings which means he was over £50. Is this true? Or is it just his income if I go ahead with bankruptcy/ IVA too. I was told he would be treated as a single person so less allowance for expenses yet he isn’t and still in a family of 6.
Also if I went bankrupt, would his wage be included in income or just the benefits? Baring in mind he would be on a DRO.
So basically
Who’s money is included for individual cases?
Sara (Debt Camel) says
“I was told to get IVA of £110 Each” who told you this?
JT says
Hi I entered into an IVA last year and the IVA company took my wife’s salary into account (in full) as part of the household income, which to be fair I understand they have to.
However, what they didn’t take into account was my wife’s personal debts, they allowed £88 per month out of the total income for my wife’s approximately £700 per month debts that she was paying.
What can I do? I’ve tried speaking to my IVA about this but they just keep saying that they’ve made an allowance for this.
Sara (Debt Camel) says
how large are your wife’s debts?
do you have any assets – are you renting? do you own a car or have one on finance?
how large are your debts that went into the IVA and what are your monthly payments?
JT says
WIfe’s debt <20k
No assets, we rent. My total debts were just over 30k or I would have gone straight for a DRO. we both have cars on finance.
Sara (Debt Camel) says
Well your current situation cannot continue. Why did you agree to this IVA when your wife would not be able to pay her debts?
I think you should both talk to National Debtline on 0808 808 4000 about your situations and the op[tions that you both have.