If you and your partner or spouse both have debts, you might be wondering whether there is a joint IVA product you can both undertake to help you clear your debts. After all, when both partners in a relationship are working together to clear debt they can be much stronger in both focus and commitment than if they had to work alone.
Unfortunately, joint IVAs do not exist, but the law does recognise that sometimes couples who live together wish to pay back debt together – in fact some debts may be shared debts – so something called an ‘interlocking’ IVA was created for such a purpose.
Interlocking IVAs allow two people who share their finances to pay their individual IVAs according to a joint common financial statement. Many couples have joint bank accounts where their salaries are paid into and living expenses are therefore shared. This can make it difficult trying to separate the living costs to satisfy the requirements of a sole IVA.
There are several benefits to this approach:
Recognition of financial dependency
A sole IVA sometimes does not take account of the joint expenses and assets if the applicant is living with someone. An interlocking IVA however recognises that not only will the couple have joint assets, like cars and property, but that their income may be different too. This will be taken into account on the common financial statement and may work out a better arrangement for the two applicants than a sole applicant.
Expenses worked out on a ‘proportional’ basis to income
If for example one partner earns double what the other does, the financial statement will formally split the expenses so the higher paid earner pays 2/3 of them. This means that the higher earner will have a disposal income roughly double what the lower earners would be.
Attractive to creditors
The costs of interlocking IVAs are lower than sole IVAs because of the joint administration costs, so they can often liked by creditors. Also, the set up process can be much simpler where there are joint assets involved, as the treatment of them would be consensual. This might not be the case with a sole IVA, as anyone with an interest in a jointly owned property may not be willing to sell it and a court order may be required.
However while a joint or interlocking IVA seems very attractive, there are pitfalls to be aware of.
Creditors reject one partner
Each person must apply and be accepted for an IVA in their own right submitting a joint budget for consideration. If one partner does not meet the requirements of their creditors, both proposals will be rejected. This would leave both partners vulnerable to having action taken against them by creditors, as both will have declared their insolvency in making the interlocking application.
One partner is insolvent and the other solvent
Where both partners differ in their solvency, a type of ‘assisted IVA’ can be used to bridge the gap. The IVA application is submitted by the insolvent partner with a proposal that the solvent partner helps by voluntarily contributing some of the disposable income to creditors. The solvent partner must keep enough of their income to pay their own personal and joint debts on time, but could submit any surplus.
Joint debt balances are not written off if one partner is till solvent
Normally with IVAs any debt balances that remain at the end of the IVA term are written off by creditors. The exception to this is where there are joint debts. If a solvent partner is contributing some of their surplus income to their partner’s IVA and making payments on a joint debt, that balance is not written off and the solvent partner must continue to pay it.
Joint or interlocking IVAs harnesses the power of two people with two incomes to pay back what is owed, and many creditors favour them as they are much more stable arrangements and less likely to fail.
To find out more about joint or interlocking IVAs, use our online Debt Calculator and get in touch with one of our experienced IVA advisors.