Liability for debts / Challenging a debt
What to consider
Is money actually owed? If so, by who to whom? Can the debt be enforced?
Trying to prove that a debt is not due and that you are not liable can take time. So, it is important to be aware that you may need to act quickly. If you don’t you could be summonsed to court or evicted from your home if the debt is about rent arrears.
A debt can only exist if you have:
- Entered into a legal contract in writing or verbally either:
– by you solely
– jointly and severally
– as a guarantor
- To pay by law, e.g. income tax, social security or Parish rates
- Been ordered to pay by a court such as maintenance, fines or compensation
Even if debt does exist, it may be possible to question it under the following:
- Where someone else is responsible
- Where legal grounds exist to set aside the contract for example
– based on a mistake about what you agreed to
– being tricked or forced into entering the agreement
– where you did not have the mental capacity to enter the agreement
Who is responsible for a debt?
- Should the debt be paid by someone else?
- You are only responsible for debts if you have agreed to them
- You can check if the bill or invoice is in your name
- Did you get the goods or the service that the bill relates to?
If you are married, the debt will only apply to you if you agreed to it, or a court rules that you are both responsible for the debt.
A creditor may ask the court to make an order against a husband for a wife’s debt where she claims to have no assets, particularly in the case of the supply of necessities. The court might consider the wife to be trying to evade responsibility for goods or services supplied to or used by the couple and grant such an order. Legal advice is recommended in such a case.
Once the court has made a judgement it may only be enforced against the assets or wages of the named debtor. But in practice, it may be difficult to distinguish each of the couple’s assets where goods are owned jointly. Legal advice should be recommended when one spouse seeks to disclaim responsibility for debts incurred by the other.
It is possible for a credit agreement to be entered into by someone else using your name and details, possibly a partner, a spouse, or a member of the family. For you to challenge such a debt means you are making an accusation of fraud. Clear evidence is always needed to make a claim of fraud. You should obtain legal advice.
In some circumstances, you may have signed an agreement after unfair pressure from a spouse, partner or close relative without fully understanding the implication or future effect of what you were agreeing to. This could be used as a legal argument to challenge a debt. Legal advice is necessary.
If you signed an agreement after taking legal advice you cannot argue that you were pressurised to do so.
Generally, a person is not personally liable for any debts of a deceased person, whether spouse, relative, administrator or executor unless the person and the deceased person had both signed an agreement, or they were jointly and severally liable for a debt.
Debts should be settled from the deceased’s estate before any legacies or share of the estate is paid. If there is not enough money left by the deceased, the debt will be irrecoverable and you will not be able to get the money back.
If you receive money paid to you when you know or should know it was paid in error, you should return the money as soon as possible. If you do not you could face a claim for keeping money you should have returned.
A person’s responsibility for a debt may be shared with one or more people, but each person may be liable for the whole of the debt even if responsibility for the debt is shared with others.
It is important to try to identify the type of contract or agreement by reviewing what you signed and if possible to read the agreement, if available.
Typical examples of debts that carry joint and several liability are:
- arrears, when there is a joint tenancy or mortgage
- credit agreements taken out jointly
- joint bank accounts
- rates, for joint tenants or owners
The creditor has the right to try to get full payment from one or all of the people responsible. In practice, this may mean the remaining tenant or owner, or the person with most money.
When a debt is joint and several it is not enough for you to pay off what had previously been agreed with the other debtor(s). Where you are responsible for the whole debt, you can be made to pay by the creditor. While you may try to get back the money from the other person, for example, by suing them, that is a separate matter and does not stop the creditor from requiring you to pay.
In some households each partner agrees to take responsibility for particular payments and the bills will be in their sole name. If the bills are in one name, this does not give rise to joint liability.
If the bills carry joint and several liability there can be problems if one partner has agreed to take liability, because the legal liability overrides any private arrangements.
The Jersey Electricity Company has a policy of not transferring electricity debts where the person who has been solely responsible leaves home. The company will only pursue the person whose name is on their agreement.
The remaining partner takes responsibility for the supply from the date the other partner left home.
JT Global (formerly Jersey Telecom) will only take action against the person whose name appears on the agreement.
If a person has acted as guarantor for a credit agreement, they will generally be responsible for the debt.
Guarantors are often required where the credit agreement is taken out by someone aged under eighteen.
The guarantor is bound by the terms of the guarantee they have given. This may not be the same as the credit agreement. You should always check the terms of the guarantee agreement.
Frequently, the lender will have a choice about which property to repossess to enforce the debt: the guarantor’s property or the property of the person who signed the agreement. Most agreements do not require the lender to sue a borrower before suing a guarantor.
For example, the debtor may have taken a car subject to a finance agreement away from the island. In these circumstances, it is much simpler to obtain a judgement and pursue the assets of a guarantor living in the island than to try to repossess the car in the UK.
Minors (people under age 18)
A creditor can take court action to recover a debt owed by a minor but if judgement is given, it cannot be enforced until the minor is 18 years old. For this reason, many shops and most finance companies will not give credit to people under 18 in Jersey.
Parents are considered to be liable for a young person’s debts up to the age of 18 in Jersey. It is a grey area in law, and legal advice is recommended.
As credit agreements cannot be enforced against minors, young people are often required to provide a guarantor, who may be a parent.
Extortionate credit and interest on accounts
Although there is no statutory law in Jersey to cover extortionate credit charges, legal advice should be obtained if someone has been induced to agree to very high rates of interest.
There is no legal definition of extortionate, but the Court can reduce an interest rate that it regards as penal. Unless you have agreed to pay interest at the time of the transaction interest can only be claimed at the Court rate from the date you should have paid the debt. The Court rate is 2% over the base rate.
The amount is incorrect
It is important to check that the amount the creditor is claiming is correct. Some examples of incorrect claims are where:
- a payment has been overlooked
- interest has been charged on an interest-free agreement
- charges have been made for goods not ordered
Can the amount be reduced or instalments paid
Sometimes payment of a debt can be made easier by arrangements made for payment by instalment. This is when payment is made by paying smaller separate amounts until full payment is made.
The creditor is a private landlord
Where you owe rent, check whether:
- you are receiving Income Support Benefit, where appropriate
- you can agree with your landlord an arrangement to pay off arrears in instalments to prevent eviction
Insurance for the debt?
Some loans are covered by payment protection insurance against sickness or unemployment. Provided the terms of the insurance policy are met, the policy will pay all or some of the debt.
It is important to check the terms of the policy in detail, for example, a policy may only pay on redundancy with specific conditions, or the insurer could claim you were suffering from an illness that started before the policy was taken out.
It is always worth reviewing any insurance policy.
Time limits on debts
Generally, a creditor can start proceedings to recover a contractual debt at any time for up to ten years from when the debt becomes payable whilst it remains outstanding.
A Court judgement remains enforceable for a period of ten years.