Beware 'joint and several' agreements

By Michael Lloyd

You may know that if you have added someone to your credit card account, you, the primary cardholder, are responsible for all the debt on the account, even if you didn't rack all of it up. But did you know the same concept applies to a shared utility bill, a joint loan, a tenancy agreement or a joint bank account?

Any debt built up under these types of agreements becomes a "joint and several" liability, meaning that lenders or their agents can pursue any one signatory for all of the money owed. If other parties go missing, die or declare themselves bankrupt, you could find yourself saddled with the whole debt.

"We see this a lot when couples separate -- people think they are only liable for 50% of the debt each when in fact they are both liable for up to 100%," PayPlan Money Advice Consultant Jane Clack explained in an emailed response to questions. "Quite often, if there has been an acrimonious separation, one may go bankrupt or enter into an Individual Voluntary Arrangement (IVA) and leave the other with the whole debt. Alternatively, one debtor disappears so the creditor chases the one it can find."

joint-and-several

The worst-case scenario, she said, is a mortgage shortfall, which occurs when your home is repossessed, but the amount it sells for is not enough
to pay the outstanding mortgage.

"We also see cases where one person has taken on responsibility for the joint debts as the other was allegedly paying the mortgage," Clack said. "The property is then repossessed so the client then becomes responsible for the shortfall as well."

When are you liable?
It's important to understand that you will typically only become liable for a partner or relative's debt in any of these circumstances if you signed a
"joint and several" agreement. While a creditor may be able to seek payment from a borrower's estate in the event of death or bankruptcy, it will usually not be able to pursue relatives if the debtor was the sole signatory.

In addition, if you are a joint signatory on an account, and lenders or debt collectors make contact with you, they are under no obligation to pursue the other parties. Even if there are other co-signers, if the creditors only have contact details for one person, it's unlikely that they'll waste time, effort and resources pursuing others.

However, the amount of time a debt has been outstanding could save you if you've been left with arrears that are not, in theory, wholly yours. If a "joint and several" debt you're being chased for is statute-barred, you may be able to get it written off.

"If you think a joint debt might be statute-barred -- i.e. you have paid nothing towards the debt for six years, have not acknowledged the debt in writing and the creditor has not gone for legal action -- you need to check if the other person(s) has made any payments," Clack said.

If they have, the statute of limitations period restarted at the time they last made a payment. However, if they have not made payments in six years, but have admitted to the creditor that they owe the debt, the time limit will only restart for them and not for you, she explained.

Before you enter ‘joint and several' agreements
While it's impossible to predict the future, the best way to avoid problems with "joint and several" credit agreements is to think twice before co-signing in the first place:

  • Assess the means of any individual you're considering entering into a joint credit agreement with. If they have a low or no income, you may want to avoid taking out a joint financial product with them.

  • Make sure you'll be able to get in touch with the person concerned if things go wrong. Moving into a shared house and immediately becoming jointly reasonable for utility bills with someone you've only just met could be a recipe for disaster.

  • Ask your co-signer(s) to have somebody act as a guarantor. This will mean that if they do disappear or are unable to pay, the party guaranteeing their liability will be jointly responsible for any arrears.

Effect on your credit
Ultimately, failing to resolve any outstanding "joint and several" debt will damage your credit profile, along with those belonging to anybody you entered into the agreement with. If you're chased for debt that you feel you are not wholly responsible for, try to contact the other people you co-signed with to set up a payment arrangement you are all happy with.

Alternatively, try to negotiate paying only a portion of what's owed to the creditor concerned, but be aware that the firm in question will be under no obligation to accept your offer, and may continue chasing you for the whole amount outstanding.

See related: What to consider before adding authorised user, How to share a credit card

Published: 3 April 2015