Worked Examples and Checklists
Joint debts, guarantors and partners: who still owes what after a debt agreement or bankruptcy
What happens to co-borrowers, guarantors, partners and jointly owned property when one person enters a debt agreement or bankruptcy in Australia, with illustrative worked examples.
A debt agreement or bankruptcy only deals with your liability. If you have a joint loan or a guarantor, the other person usually remains liable for the whole debt, not just half, and the creditor can pursue them for it once you are protected. Jointly owned property is also affected: in a bankruptcy your share vests in the trustee, while your co-owner keeps theirs. Before choosing a formal option, list every debt that someone else is also liable for and talk to them, because your solution can become their problem overnight. The illustrative examples below show the most common situations.
This guide is part of the debt option decision checklist. It is general information; joint debts are a common reason to get legal advice.
Who is liable for what
| Arrangement | Your liability | Other person's liability after your debt agreement or bankruptcy |
|---|---|---|
| Joint loan or joint credit card account | Jointly and severally liable for the whole debt | Still liable for the whole debt |
| Additional cardholder on your card | Not usually liable | Usually not liable; check the contract |
| Guarantee of your loan by a parent or friend | Borrower | Guarantor can be pursued for the amount guaranteed |
| Your guarantee of someone else's loan | Guarantor; a provable debt in your bankruptcy | Borrower still liable |
| Debt in your partner's sole name | Not liable, unless you signed or guaranteed | Partner liable as before |
| Utility or lease in both names | Liable together | Still liable |
Being married or in a de facto relationship does not, by itself, make you liable for your partner's debts. What matters is what each person signed.
Example 1: joint credit card and personal loan
Tom and Ella separated last year. They still have a joint credit card ($9,000) and a joint personal loan ($16,000). Tom enters a debt agreement that includes his liability for both.
- Tom's creditors under the agreement include the card issuer and the lender, which receive dividends from Tom's payments.
- Ella remains liable for the full $25,000, less whatever the creditors receive from Tom's agreement.
- The lenders can ask Ella to pay, and can list defaults on Ella's credit report if she does not.
Better approach: before Tom signs, both get advice. Options include Ella seeking a hardship arrangement or a payment plan on her side, or both proposing a solution together.
Example 2: a parent as guarantor
Maya's mother guaranteed her $30,000 car loan. Maya goes bankrupt.
- The car financier can repossess and sell the car. If the sale raises $19,000 and costs are $1,000, $12,000 remains owing.
- Maya's bankruptcy releases Maya from the $12,000 shortfall at discharge (it is provable), but her mother can be pursued for it under the guarantee.
- Her mother may be able to claim in Maya's bankruptcy for any amount she pays.
Guarantors sometimes have defences — for example if the lender did not properly explain the guarantee or if the guarantor gained no benefit and was under pressure. A guarantor in this position should get legal advice and can complain to AFCA.
Example 3: jointly owned home
Sean and Kim own their Canberra home as joint tenants: worth $780,000, mortgage $560,000, equity $220,000. Sean goes bankrupt; Kim does not.
| Item | Amount |
|---|---|
| Total equity | $220,000 |
| Sean's half share of equity | $110,000 |
| Selling costs if the trustee sells, assumed | about $25,000 |
| Approximate value of Sean's share to the trustee | about $97,500 |
Sean's share vests in the trustee; the joint tenancy is severed and becomes a tenancy in common. The trustee may offer to sell Sean's share to Kim for about its value. If Kim cannot buy it, the trustee can apply to court to have the property sold, and Kim receives her own share of the proceeds. Kim's share is protected, but she may lose the home.
This is why a debt agreement or a personal insolvency agreement is often explored first by home owners. See protected assets in bankruptcy.
Example 4: business debts and personal guarantees
Directors of small companies often give personal guarantees for business loans, equipment finance, leases and trade accounts. If the company fails, the creditors can pursue the director under the guarantees. Those debts are personal debts of the director and can be dealt with in the director's bankruptcy, but a director who becomes bankrupt is automatically disqualified from managing corporations. Also check for personal liability for company tax debts through ATO director penalty notices.
Relationships and transfers
- Transferring property to a partner before bankruptcy can be reversed by a trustee if the transfer was for less than market value or meant to defeat creditors.
- Family law property settlements interact with bankruptcy in complex ways; the trustee may be able to join family law proceedings.
- Financial abuse: if you were pressured into a joint loan or guarantee, or a partner took out debt in your name, tell your lender and a financial counsellor. Lenders and AFCA consider family violence and coercion, and you may be able to have the debt waived or reduced.
Checklist before you choose an option
- List every debt with another person's name on it.
- Tell co-borrowers and guarantors before you lodge anything.
- Ask whether a joint proposal or joint hardship request is possible.
- Check jointly owned property values and mortgages.
- Get legal advice where a guarantor is a parent, a relationship has ended or there was pressure.
Frequently asked questions
Will my partner's credit report show my bankruptcy?
No. Your bankruptcy is recorded against you. But your partner's credit report can show defaults on joint debts if they are not paid.
Can my partner and I do a joint debt agreement?
Joint debt agreement proposals are possible in some circumstances under Part IX. Each person must meet the eligibility rules; ask AFSA or a registered administrator.
Does bankruptcy affect my partner's wages or savings?
No. Your trustee cannot take your partner's own income or property. Joint accounts need attention, as your share of money in them may be available to the trustee.
Sources
- Australian Financial Security Authority — bankruptcy and joint property, debt agreements
- Australian Financial Complaints Authority — guarantor and joint debt complaints
- Legal Aid and community legal centres via the National Debt Helpline — free legal help
- Australian Taxation Office — director penalty notices
