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Liability for debts - challenging a debt (A debt is a sum of money which has not been paid) (13.15.7)

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13.15.7 Liability for debts - challenging a debt (A debt is a sum of money which has not been paid)

 

Extent:       Jersey

Updated:    March 2017

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Words You May Need to Know

Assets –  belongings, property that you own

Liability / liable -   If you have ‘liability’ it means you are responsible for something

Challenging a debt  -  Can it be disputed? Can you say it is not right?

Summonsed – sent a letter from the court ordering you to go to court on a certain day

Debtor - This is the person who owes the money

Creditor - This is the person who is owed the money

Lender – someone or a company that loans money

Necessities – things you need to live with eg food, clothes and medicine but not luxury items

Evade – avoid, not take responsibility for something

Disclaim – disown, say something is not yours

Income – money that you have to live with or spend eg from wages, benefits, investments

Ensure – to check and make sure that something is like it should be

Credit-worthiness – a lender may look at your circumstances and decide if they think you

are likely to be able to pay your debts

Credit agreement – a legal contract to loan money

Administrator / executor – people responsible for dealing with somebody’s affairs (‘or estate’) after the person has died

Identify – to know or be able to prove what something or who someone is   

Overrides – overrule, comes before 

Policy – a certain way of doing things, a practice

Transfer – to move over, move across

Guarantee – here, an undertaking (agreement) to take responsibility for someone else’s debt if they do not pay it

Repossess – to take back possession of something

Enforce – make an obligation happen; implement something eg here, put a court order into effect

Extortionate – very high, excessive

Statutory - a Law passed by the States

Induce – persuade

Penal – where an action is considered to be unreasonably hard and more like a punishment

Transaction – agreement, deal

Assessment – an estimate of the value

What is the debt?

First consider:

  • is money actually owed. If so, by who to whom?
  • can the debt be enforced ( can the person be made to pay)

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 agreed) either:
    - on your own behalf ( just involving you),
    - or what is called ‘jointly and severally’ (where you agree to share the debt but will
       pay if the other person does not)  or
    - as a guarantor  ( this means that if the person who has taken on the debt does not
       pay, you will).

  • to pay by law, e.g. income tax, social security or rates.
  • been ordered to pay by a court such as maintenance, fines or compensation.

 Even if a 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 or
    - where you did not have mental capacity to enter the agreement

 

Who is responsible for a debt ? ( who is liable)

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?

 

Married couples

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 the husband for his wife's debt where she claims to have no assets, particularly in the case of 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.

In practice, creditors should ensure a married woman's own credit-worthiness, or ask for her husband to be guarantor where she has no income of her own.

False name

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 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 if possible.

Undue influence

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.

Death

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. (see below).

Debts should be settled from the deceased's estate before any legacies (gifts) or share of the estate are 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 (by mistake) 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.

Joint liability

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 (ie if the debt carried a 'joint and several' liability).

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 which 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/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/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 her/him, 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 her/his sole name. If the bills are in one name, this does not give rise to joint liability.

However, 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.

Utility debts

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 their telephone line agreement.

Guarantors

If a person has acted as guarantor for a credit agreement, s/he will generally be responsible for the debt.

Guarantors are often required where the credit agreement is taken out by someone aged under eighteen - for details of whether this agreement can be enforced, see Minors (below).

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 (deemed) to be liable for a young person's debts up to the age of 18 in Jersey for the 'necessities of  life'. 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, see above ‘Guarantors.’

Extortionate credit / 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 ( currently 2% over base rate) from the date you should have paid the debt.

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 (ie not noticed)
  • interest has been charged on an interest-free agreement (ie there should be no interest)
  • 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.

If the creditor is:-

  • a private landlord
  • the Income Tax Department 
  • a Housing provider eg Andium Homes   
  • Legal Aid debts

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

The creditor is the Income Tax Department

Where an income tax demand is received, check whether:-

  • the demand is based on an estimated assessment of income which could be challenged or corrected
  • the demand is based on both husband and wife's income when perhaps they are separated. If this is the case, the tax due can be re-assessed on an individual basis
  • the Income Tax Department will agree  a payment in instalments over a set period

Insurance for the debt?

Some loans are covered by ‘payment protection insurance’ against sickness or unemployment. So, 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 illness which 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 from 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.

The rules governing when a claim can no longer be made are however complex – see  “Time limits on legal action”  4.6.0.L5

 

Contact details:

Citizens Advice Jersey    

The Annexe, St Paul’s Community Centre, New Street, St Helier, JE2 3WP

Tel:  08007 350249   and   724942

Email: This email address is being protected from spambots. You need JavaScript enabled to view it.                     Website:  www.cab.org.je