Joint Liability
Candlefocus EditorJoint liability is typically established through a contract, creating a general partnership, or when applying jointly for credit. Joint liability can also exist when two or more people take out a loan together, acting as co-signers. Each of the parties in a joint liability agreement is jointly and severally liable. This means they are both and individually responsible for the full amount of the loan or obligation, regardless of their individual financial contribution to the total amount owed.
If a creditor is not satisfied with the repayment of the joint liability, they may choose to pursue any of the responsible parties through legal proceedings. After judgement, all of the responsible parties are obligated to repay their shared portion of the debt. In most cases, creditors will typically pursue the most financially solvent of the parties responsible for repayment of the debt. There is a risk that if the most financially responsible party fails to pay, the other parties may be held responsible for full repayment.
Joint liability can be beneficial when individuals are attempting to qualify for a loan or gain better access to credit and finance. However, joint liability also imposes a high risk to the parties involved. If the debt is not repaid, each of the liable parties will suffer individually. By entering a joint liability agreement, individuals must be aware that their credit and finances are being affected. Therefore, it is important for individuals to carefully consider the risks associated with joint liability before entering into any agreement.