If you live with a spouse or other long-term partner who you share your finances with, you may be wondering whether it is possible to get a joint IVA which includes both of you. You pay the same monthly bills after all, and you pool your resources to try and pay off your debts—some of which may be in both your names.
The short answer is, “Not technically, no.” But the longer answer is, “Yes, indirectly.”
Sound confusing? It isn’t as complicated as you might be thinking.
By definition, an IVA is a debt solution which is designed for one person. This is why you cannot have two people sharing the same IVA. That would not be an individual voluntary arrangement.
But your creditors know that you may be in a situation where you are sharing finances with someone else. That is why you can apply for interlocking IVAs.
Interlocking IVAs are exactly what they sound like. Two people apply for IVAs separately, and then the two IVAs are linked together. Administration of the IVAs is conducted jointly, but they are technically two different arrangements. So you will have just one monthly lump sum to pay between you.
There are two important things to keep in mind when you are applying for interlocking IVAs:
- You must each apply separately for your IVAs. You cannot fill out a single application.
- Joint debts are not automatically included in full on an IVA if you do not set up an interlocking IVA with the person who shares the debt.
IVAs and Joint Debts
Let’s talk a little more about joint debts. A joint debt is a liability that you share with another person. Both of you are responsible for paying back the debt in full. That person could be your spouse, it could be a business partner, it could be a family member.
If you enter into an IVA, that joint debt will become part of it. You will only need to pay as much as you can afford on the joint debt every month. At the end of the IVA, whatever remaining dues you owe will be wiped out.
This does not free the other party who entered into the joint debt with you from his or her obligation. In fact, it could make that person’s situation worse.
Say for example that you signed a business loan with a company partner. You get an IVA, but that person does not. You are now making smaller monthly payments on the loan each month, but that person still owes the same amount. In five years, you no longer are liable for the debt, but that does not expunge it for your partner. That person is now responsible for the entire remaining liability.
Imagine though in this same scenario that you owe on a personal loan that you signed with your spouse. Your spouse gets an IVA, and you interlock them together. Both of you are able to make smaller monthly payments on the personal loan debt. In five years, when your IVA is complete, you are both released from your remaining obligation. The loan debt is dissolved.
You can see how the situation with the business partner could turn out quite badly, perhaps even severing your partnership. The situation with your spouse on the other hand would have resulted in solvency for both of you.
This is why if you have any joint debts, you should consider very carefully the ramifications if you decide to get an IVA and include those debts. The only way for both parties to become solvent is through interlocking IVAs. Otherwise, one party is likely to sink even deeper into debt.
To take another example, imagine that you and your spouse both owed on the same debt, but you decide to apply for an IVA, and your spouse does not. You might have assumed that your spouse would be freed from the debt after the five-year period elapsed and the IVA ended, but you would come out at the other end with your spouse still fully liable for the debt. In effect, that would mean you still owed on it too, however indirectly, since you manage your finances as a household.
Not only that, but during the IVA, your spouse would have had to continue making high payments on the debt. As a household, you would still have struggled the entire time to pay your monthly bills as a result. You can get around this entire issue by getting interlocking IVAs.
If you are uncertain what would happen with your joint debts if you get an IVA, you can speak to an insolvency practitioner about it. Need to get in touch with an IP? At IVA Plan, we have handled many IVA cases where joint debts were involved. Give us a call at 0203 326 9000 and we will review your situation and make recommendations that will get you and your insolvent partner back on track.