As many couples will take out joint finance such as bank loans, overdrafts and mortgages, their affairs will be interlinked in the event of financial difficulties. While you might hear the term joint IVA this is not strictly speaking correct. We will now take a look at how couples and families may be able to address their financial difficulties and arrange a joint IVA in all but name.
What is Joint IVA?
As the term suggests, individual voluntary arrangement, it is not possible to arrange one in the names of two people. Instead, where both parties are having financial difficulties it is possible to take out individual IVAs and then “interlock” these arrangements. They will be administered together with one joint payment made each month towards their combined debts. The fact that interlocking IVAs are effectively managed as one arrangement will also save money on administration expenses leaving more to go towards outstanding debts.
How to work out repayments?
One of the other major benefits for creditors when it comes to interlocking arrangements is the ability to apportion household expenses based on income. So for example, if one partner earns twice as much as the other then they would be expected to pay two-thirds of household bills. This ensures that parties to individual arrangements are not able to artificially increase their theoretical contribution to household bills to the detriment of creditors.
How to deal with joint debts in an IVA?
Many people fail to fully understand the concept of joint debts with a general assumption that both parties are responsible for “their share”. In reality, if one party to a joint debt was to apply for an IVA then the other party would be responsible (in full) for making future payments towards that debt. In this circumstance, the joint debt would not be part of the arrangement. However, if both parties take out an interlocking IVA, then repayments will be made as part of the overall arrangement.
Creditors often prefer joint debts to be covered by interlocking IVAs as this simplifies the administration, repayment as well as the liquidation of joint assets if needed. For example, if two parties held an asset jointly and one of the parties entered into an individual voluntary arrangement then their share of that asset will be part of their arrangement. However, unless able to obtain a court order it is not easy to force the second party to consent to the sale of the asset.
It is also worth noting at this point that there is no requirement to have joint debts in order to arrange interlocking IVAs. The fact that there is some form of financial dependence between both parties is often enough to create interlocking arrangements.
Can it be rejected by creditors?
As soon as you go down the path of interlocking IVAs and approach your creditors to warn of your financial situation, there can be potential repercussions. If two parties decide to go for interlocking IVAs then this will depend on both parties individually meeting the criteria for their own arrangement. On occasion, one party may see their application rejected by creditors which can leave both parties vulnerable to legal action. Indeed, if one IVA was to be rejected by creditors then this may impact the ability of the other individual to secure their own IVA.
In some circumstances this could lead to bankruptcy proceedings unless some other form of formal debt repayment plan could be arranged.
Are debts written off?
Under normal circumstances, debt balances are written off at the end of an IVA assuming that the individual has fulfilled all of their legal and financial obligations. As we mentioned above, the only exception to this rule relates to joint debts where a solvent party would still be expected to repay the full amount. The situation also becomes a little more complicated when joint debts are guaranteed by a third party. In the event that both parties entered into an “interlocking” IVA then the guarantor would be legally obliged to cover the outstanding debt per the original agreement.
While in theory there is no such thing as a joint IVA it is possible to arrange stand-alone arrangements for each party and then “interlock” them. Creditors often prefer this arrangement because it combines the power of two incomes, gives a better balance and is also more cost-effective with regards to administration fees. The first step towards “interlocking” IVAs is an application by each party to secure their own arrangements.