An Individual Voluntary Arrangement (IVA) is an excellent debt solution that can leave you debt free in 5 years and gives you legal protection from your creditors throughout its term.
However it only protects the person named in the agreement. This means that if you and your partner or spouse have joint debts then only you will be protected from these if you start the Arrangement. Your partner will still be liable to pay them.
For this reason where joint debts exist you always need to plan how your partner will manage these if you start an IVA.
What is a joint debt?
A joint debt is a debt that is taken in the name of two different people. The most usual type of unsecured joint debts are loans and joint bank accounts where there is an overdraft facility.
Where these type of debts are concern both parties sign the original credit agreement to say they agree to be jointly responsible for repaying the debt. This is known as joint and severable liability.
This means that if one party cannot pay or starts a formal debt solution such as an IVA the other party is still responsible for paying 100% of the outstanding debt. The debt is not split 50/50.
BMD Tip: It would be unusual for a credit card to be a joint debt. If you have a credit card with a second card holder this is not a joint debt. It is only the named account holder who is liable for repaying the debt built up from the use of both cards. The second card holder is not responsible.
Can I leave joint debts out of my IVA?
Given that the other account holder will still be liable for any joint debts if you start an IVA you might think that one way round this is to simply leave these debts out of your Arrangement. If you could continue to pay these as normal your partner would have nothing to worry about.
The problem is that it is extremely difficult to leave debts out of your Arrangement. If you attempt to leave out any debts it is highly likely that the remaining creditors would not accept your proposal as they would see this as unfair treatment. Why should someone else be paid in full but they be left unpaid?
For this reason you must always assume that if you start an IVA you will have to include any debts you have in joint names with someone else. You therefore need to plan how this other person will deal with the debt as they will remain 100% liable for it.
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What if my partner cannot afford the ongoing joint debt payments?
Once you have started your IVA the other party responsible for any joint debts can continue making the payments if they are able to do so. However they would have to maintain these from their own income and this is what normally causes the issue.
More often than not the other person simply cannot afford to maintain the joint debt repayments as their own income is too small or they do not have any. Where this is the case they will also have to consider using a debt solution.
One option is that they start a Debt Management Plan to deal with the debt they are still responsible for paying. This might be sensible if the joint debts are small and can be repaid in a reasonable period of time. However if this is not the case then the alternative is to consider a joint IVA.
Can we start a joint IVA?
A joint IVA includes both you and your partner’s debts whether they are joint or not. You make a single monthly payment into the Arrangement each month based on your household disposable income.
Including all of your individual and joint debts in this way means that both you and your spouse or partner are fully protected from your creditors. When the agreement is finished all of your debts are written off at the same time and you can move on with your lives together debt free.
BMD Tip: In fact there is no such thing as a joint IVA. It is really two Arrangement that run alongside each other. However they are commonly referred to as joint.
What happens to a joint mortgage in an IVA?
The first thing to say about mortgage debt is that it cannot be included in an IVA and you must maintain the monthly payments as part of your living expenses budget. As long as you do this your property will not be at risk.
However it is important to understand that if you start an IVA you will be obliged to release equity from your property if you can to increase the amount that is repaid to your creditors.
If your property is owned together with someone else you therefore need to make them aware of this so they do not object if and when the time comes. It is important for them to understand that only your share of the equity in the property can be considered. Their’s cannot be touched.
BMD Tip: If you start a joint IVA and you and your partner have a jointly owned property 100% of the equity has to be considered rather than just your half. Given this it could be better for your spouse or partner to remain outside the Arrangement and deal with any joint debts in a different way if their share of the equity is significantly more than the debt they owe.
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