Do I have to pay my partner’s debt?
I had just sat down on the train into London, newspaper out, ready to read about the formations Capello is thinking of for the world cup, when my old mate William suddenly appears and sits down opposite me.
We hadn’t seen each other for quite a few months so we were quickly catching up on things when I asked how Amanda was. He looked puzzled and said, “haven’t you heard? We split a few weeks ago”.
“Good thing you splitting or.....?” I muttered. I was fishing for a bit more info, and like an old trooper he spilled it out. “She had to go mate, a liability, she was hiding her debts from me, can’t put the house at risk”. There was me thinking her debts were 20, 30 or even 40 grand but they turn out to be just 16.
Well I was taken aback, could not have been much of a relationship if he dumped her over some debts, which most of us have, don’t we? And what’s this about the house being at risk? Is he liable for his partner’s debts?
If someone has debts in their name only then they are the only ones that is responsible for it. For debts that are in joint names, then in the event that one person cannot pay then the other named person is responsible for the full amount outstanding. It is not split 50-50 just because it is joint names.
This is not the case with credit or store card debts because they are in one name only, so any additional cardholder is not responsible for the payments.
So, with that established, my mate was not liable for his girlfriend’s debts of £16,000. So why did he boot her out of the home?
Now this is the interesting bit. When someone cannot pay back their unsecured debts, lenders can take action to secure their debts on a borrower’s assets, such as a house. They can also apply for a County Court judgement and then ask the court to enforce repayment. Bailiffs can then be sent into the home or an order made for an attachment of earnings, meaning that payment can be taken from your salary before it goes into your bank.
Also the credit file of both persons could be affected because of the link on the address of one person having debts.
What worried Will was the prospect of a lender forcing Amanda into bankruptcy and then going after her share of the property, if any, to repay debts.
In Will’s case the house was in his name only and Amanda was probably not entitled to any of the equity (the difference between the mortgage amount outstanding and the value), due to the short time they were together, so the house would be safe.
It could however have been very different. What many tend to forget is that when two people are both contributing to the household expenditure, whether paying the mortgage of just meeting the food bill, they are developing over time what is known as ‘beneficial interest’.
The length of time it takes to register such an interest is not a straightforward issue as there are many factors involved. For example, if William had the property for five years and Amanda moved in three years later and they then split after being together for a couple of years, then one would not expect there to be any beneficial interest.
It would be different though if Amanda had moved in when the property was purchased and left after five years, then arguably she would have built up such an interest.
In any event, just removing Amanda from the house does not mean the end of her entitlement to any beneficial interest simply because she no longer lives there. Think what happens in a divorce - the other person still has a claim on the property even though it can take years to settle, as in any bankruptcy scenario.
So was Will right in applying his own moral standards to his relationship or did he over- react in not tolerating anyone with debt issues? I would argue that Amanda is better off without him than be hooked up for many years with someone that comes across as uncaring or supportive.
You and your partner will be linked together if you have any financial connection, such as the rental agreement or mortgage in joint names or even a joint loan. If you have a partner who has debt problems then you may wish to disassociate yourself from their credit file. You can do this by writing to any of the main credit reference agencies.
More importantly though, how about getting some support for your loved one and start to help manage the debts. Once under control this may well improve matters and remove the risk of bailiffs calling.
According to statistics published by the Consumer Credit Counselling Service, it has been counselling an increasing number of men over the past three years. In 2007 only 44.2% of clients were men – this increased to 48.4% by 2009. If this trend continues then so will the chances of the girlfriend booting the boyfriend out of the house – and not the other way around.
A person (or business) unable to pay the debts it owes creditors can either volunteer or be forced into bankruptcy – a legal proceeding where an insolvent person can be relieved of their financial obligations – but loses control over their bank accounts. Bankruptcy is not a soft option. Although it may wipe the financial slate clean, it is extremely harmful to a person’s credit rating (it will stay on your credit record for six years) and will adversely affect your future dealings with financial institutions. Bankruptcy costs £600 paid upfront.