There are several ways for a third party to assume responsibility for your debt, but not all are simple.
Some of the ways that a person can take responsibility for your debt are considered formal, meaning that they have the approval of your creditors.
In contrast, others are considered informal, which could leave you with responsibility for the debt in the end.
Here are some of the options that you have available to you.
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Informal ways for someone else to assume responsibility of your debt
Paying your repayments on your behalf
One of the most common ways that someone may try to help you pay your debt is by simply making the monthly payments to your creditors on your behalf, either by paying your creditors directly or by transferring the funds to you for you to pay in your name.
Although this method is simple, it does not transfer responsibility for the debt to the third party, and so if they stop paying, your creditors will still look to you for the rest of their repayments.
The only way to protect yourself in this agreement is to have the person who is agreeing to make your payments sign a contract with your creditors, stating that they are taking over ownership of the debt and all subsequent repayments.
Formal ways for someone else to assume responsibility of your debt
Assuming sole legal responsibility
The formal way for someone to pay your debts on your behalf, rather than just paying you money to use for your repayments, is to assume the sole legal responsibility of your debt by signing an agreement with your creditors.
Generally, anyone looking to do this will have to undergo a credit application to ensure that they meet the creditor’s standard lending criteria.
Still, if they are accepted, you will generally be discharged from your agreement, and your debt amount will be transferred to the third party.
To ensure that you are covered in this agreement, try to get confirmation that you are no longer legally responsible for the debt in writing from your creditors.
With a balance transfer
Another way that a person can relieve you of your debt is by transferring a part or all of the balance of your credit card to their own with a balance transfer.
Once the transfer has been completed, your credit card debt will be paid, and the person who has taken the balance will become legally liable for the liability under their own name.
By taking out new financing
A balance transfer is just one way for a third party to transfer your debt into their name.
They may choose to take out financing with the same creditor or a new creditor of their choice, paying your debt off in full with the new financing and then assuming responsibility for the debt themselves.
By becoming your guarantor
A guarantor promises to pay the debt of the person that they are acting on behalf of if they are unable to pay.
Therefore if a person contacts your creditors and asks to become your guarantor, then they will become responsible for your debt if you can’t make your payments.
Your name will still be connected to the debt, but at the end of the day, your guarantor has signed a contract stating that they will assume responsibility on your behalf, and so as long as they make the repayments, you will no longer be chased by your creditors.
Should you allow someone else to assume responsibility for your debt?
Just because someone can assume responsibility for your debt doesn’t mean that they should.
Debt is a solemn commitment, and transferring it to someone else, such as a family member or friend, even if they have offered to help you out, can negatively impact their own financial situation or put pressure on your relationship with them.
Alternatives to allowing someone else to pay for your debt
Rather than immediately accepting an offer from someone to pay or take on your debt, stop and consider whether you could resolve your debt yourself with the help of a debt relief service such as credit counselling, debt consolidation or consumer proposal.
Credit counselling is designed to help people in debt get their heads around their finances by calculating what they owe and creating a budget to help them make their monthly payments.
Credit counsellors can also talk to your creditors on your behalf, helping you to negotiate a payment plan or to secure a lower interest rate.
Multiple debts can quickly become overwhelming, and it is easy to lose track of your payment deadlines.
Debt consolidation is designed to help you turn numerous debts into one monthly repayment that is more comfortable to manage.
If you’re struggling to make your minimum repayments and have more debt than you can afford, you may want to consider filing a consumer proposal with a Licensed Trustee.
Your Licensed Trustee will assess your finances to determine what you can afford to repay and will present your proposal to your creditors.
If accepted by your creditors, you will pay the agreed monthly repayments over a set period (up to five years), after which any of your remaining debts will be discharged.
Unsure which debt relief option is for you?
If you’re unsure about allowing a third party to pay for your debts or can’t decide which debt-relief option is right for you, you need to speak with a Licensed Trustee.
Licensed Trustees are government regulated specialists who are trained to provide advice and services to people in debt.
Here at Bankruptcy Canada, we can connect you with more than 430 local Licensed Trustees from across Canada, who will be able to offer you a free, and confidential meeting to discuss your finances and the options that best suit your situation.
To find out more or to be matched with a local Trustee, contact us today on (877) 879-4770 or fill out our online form.