If I do a Trust Deed will my partner have to pay my debt
One of the fundamental rules about debt in the UK is that if you are unable to repay your debt, a third party cannot then be made responsible for paying what you owe. Even if you are married or living with a partner, these people cannot be made to pay your debt.
As such if you start a Trust Deed (TD) meaning that you are not likely to repay all of the debt your partner cannot be made responsible for the payments in your place.
Nevertheless, if you are living with your spouse or partner there are certain elements of the application process that may affect them that you need to be aware of.
You have to disclose your partner’s income when you apply for a Trust Deed
In order to start a Trust Deed you first need to calculate exactly how much you can afford to pay towards your debts each month. This figure is called your disposable income which is calculated by taking your income and deducting your reasonable living expenses.
If you are living with your partner and they also have an income you will normally have to disclose what this income is.
Your partner will not be expected to contribute towards your debt however they do have to contribute to their fair share of the household living expenses based on the amount they are earning.
If you both earn roughly the same amount then your creditors would expect your partner to pay for half of the joint living expenses (mortgage; rent; utilities etc). They would not accept you claiming that you pay for all of the household expenses and therefore artificially reducing the disposable income you have left to pay into your Trust Deed.
The only time when your partner would not have to disclose their income is if you can prove that you are both paying for exactly half of the household bills and you keep your other expenses totally separate.
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What if you are paying your partner’s debts?
If you have been helping your partner pay their debts then you will no longer be able to do this if your start a Trust Deed.
You may not be directly paying your partner’s debts for them. The most common way for someone to help pay their partner’s debts is to allow them to live rent free so all of their money can be used for their debt repayments.
If you start a TD this situation cannot continue because your partner must show that they are contributing to their fair share of the household expenses.
If this does not happen then your creditors will ask why they are not receiving full payment of their debt while you are continuing to pay someone else’s debt and they would probably reject your Trust Deed.
Clearly if your partner is unable to continue to pay their debt without your help, then you should both be looking at a debt management solution. You might both be able to start a TD or a Debt Arrangement Scheme or a combination of both.
What happens to joint debts in a Trust Deed?
If you have got joint debts with your partner and you start a Trust Deed it is very important to understand that your partner is still liable to pay the full outstanding balance of the debt themselves.
The fact that you have started a TD does not protect your partner if you have joint debts. If your partner is not in a position to be able to continue to pay any joint debts from their disposable income you will probably both need to use a debt management solution to deal with the problem.
This might be two interlocking Trust Deeds (commonly known as a joint Trust Deed). However the solution you both choose will very much depend on your specific financial circumstances.
What happens to equity in a jointly owned home?
If you are a home owner and you start a Trust Deed you will be expected to release all your equity from your property as calculated at the start of the TD to increase the amount you repay your creditors.
However if the property is owned in joint names with your spouse or partner, then the equity in your property will normally be shared between you 50/50.
Because your partner is not responsible for paying your debt, they cannot be made to use any of their share of the equity in your property to put towards the payment of your debts. Only your half of the equity must be released to meet the conditions of your TD.
This will come as a relief to many spouses and partners. However it can also give homeowners an opportunity to settle their TDs early.
Your partner could chose to help you settle your Trist Deed by agreeing to release some of their equity from the jointly owned property. They are under no obligation to do this and so can stipulate the condition that the money is used to pay for an early settlement of your TD. If the creditors do not agree to this then the money is simply not made available.
Your partner will not be directly involved in your Trust Deed
Because your spouse or partner is not responsible to pay your debts, if you start a Trust Deed they will not be directly involved with the agreement. They certainly cannot be forced to help you repay your debt.
However the fact that you are in a TD may affect your partner indirectly if as is often the case, your income and living expenditures are combined.
If your partner has been used to you supporting them so that they can pay their debts, this situation in particular will have to be carefully considered and may mean that your partner also needs to implement a debt management solution themselves.
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