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Debt Relief – Insolvency – Bankruptcy Information » Bankruptcy Help » If I Declare Bankruptcy, What Happens to My Joint Debts?

If I Declare Bankruptcy, What Happens to My Joint Debts?

As the stigma surrounding bankruptcy reduces more and more people are choosing this solution to deal with a debt problem. However this process will not protect their spouse or partner who will be left with responsibility for 100% of any joint balances.

If you declare bankruptcy, all of your debts are taken away. You will not be asked to pay anything towards your debt unless you can afford to do and after 12 months you will be discharged and the restrictions of bankruptcy lifted.

As such, for many – particularly those who rent their home – bankruptcy is an extremely good way of resolving a debt problem.

However, if you have debts which are in joint names with someone else for example a joint bank loan or overdraft, the joint account holder will not be protected.

Joint liability

Taking a debt in joint names means that both parties have joint and severable liability for the repayment of the debt. If one person is subsequently unable to pay or declares bankruptcy, the other party remains responsible for the full outstanding amount.

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For this reason, if you have any joint debts and you declare bankruptcy, the other joint account holder 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.

There are some debts which may seem to have joint liability but actually do not. One example of this is a credit card account second card holder.

In this situation, the second card is used by a spouse, partner or other family member. However, they do not have any real liability to repay any debt incurred. The account and liability to repay any debt remains in the name of the original account holder.

Planning essential

Because of the rules surrounding joint liability, before deciding to declare bankruptcy, 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 and other options such as a debt management plan or individual voluntary arrangement should also be considered.

As the economy struggles to recover, more and more people are declaring bankruptcy to deal with debt problems. However, before you consider this solution, you must consider what will happen to any joint debts.

Because bankruptcy only protects the individual person who has gone through the process you will need to plan how the other account holder of any joint debts will cope with the ongoing responsibility of the full outstanding debt.

Steve Jackson is a debt adviser from BeatMyDebt.com in the UK. For more quality and unbiased information on Personal Debt Solutions, visit our website at www.beatmydebt.com

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