Understanding family debt

Family debt occurs when an adult family member asks another family member, often a parent, to:

  1. Borrow money on their behalf. If you do this then you owe the money to the creditor; or

  2. Act as the guarantor of one or more loans. If you do this you’re guaranteeing the loan repayments will be made.

 

In either circumstance you need to be aware that you’re responsible for the debt if the family member is unable or refuses to make the payments.

What to do before agreeing



Before you agree to either borrow money on someone else’s behalf, or guarantee a loan, you should be aware of the consequences.

  • It’s important to obtain legal advice to ensure you are aware of the legal consequences of becoming a guarantor before signing any documents.

  • Do not sign documents you do not understand.

  • Access Financial Counselling to be sure you will be able to cover the payments if required, without putting yourself into financial distress.

  • Check if there are other loans, with lower interest rates and/or fees which may be more suitable.

  • Decide if the loan is absolutely necessary – can the purchase be delayed until the family member can make the payments themselves.

  • Be honest with your family member if you believe you cannot cover the debt or do not wish to proceed.

  • If you think that you or someone you know could be the victim of elder abuse, including financial abuse, contact the Elder Abuse Prevention Unit.

Preventative measures



There are steps you can take to avoid family debt causing you financial distress.

One
Talk to a financial counsellor
A Financial Counsellor can give you information about the risks involved to help you make this decision but cannot provide you with legal advice.
Know the possible financial consequences
Ensure you are financially able to maintain the debt if the family member cannot pay.
Alternative solutions
Ask the family member to look for alternative solutions like a more affordable mortgage or cheaper home, fewer white goods, looking into second hand options or waiting until items are on sale.
Delay the purchase
Ask if the purchase can be delayed until the family member has the capacity to make the payments themselves.

Additional information

 

In any legal matter, it’s best to get legal advice from Legal Aid Queensland on 1300 651 188

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