Can You Get a Joint IVA? Advice for Couples in Debt

For couples grappling with debt in England and Wales, understanding the available options is crucial. An Individual Voluntary Arrangement (IVA) can sometimes be a suitable solution for managing debt, but what if both partners are struggling financially? Can you opt for a joint IVA, and is it the best choice for your situation? Let’s explore these questions in depth.

What is a Joint IVA?

A Joint IVA is a debt solution designed for couples where both partners have unsecured debts. It combines both individuals’ debts into a single arrangement, allowing them to make one affordable monthly payment. This can simplify the process for couples by managing their debts collectively rather than separately.

How Does a Joint IVA Work?

In a Joint IVA, both partners agree to pay a set amount each month over a typical period of five years (or six years if homeowner equity release is necessary in the final year). This payment is distributed among their creditors. The IVA becomes legally binding once 75% by value of the creditors agree to the terms. Once completed, any remaining unsecured debt is written off.

Consider the case of Jane and Mark, a couple facing financial distress due to credit card debts and personal loans. They decided to enter into a Joint IVA after consulting with a licensed Insolvency Practitioner. By doing so, they managed to consolidate their debts and agreed on a monthly payment that was feasible based on their combined income. Over five years, they diligently made their payments, which helped them avoid the stress and potential bankruptcy that individual negotiations might have caused. This unified approach not only simplified their financial management but also strengthened their resolve to tackle their debts together.

Eligibility Criteria for Joint IVA

Both partners must have unsecured debts that they are unable to repay in full. It’s vital that both individuals in the couple are committed to the process, as both will need to provide detailed information about their financial situation. The process is managed by a licensed Insolvency Practitioner, and it’s essential to seek advice to ensure this is the right solution for your situation.

To illustrate, let’s look at Sarah and Tom, a couple with a combined debt of £70,000 from various credit facilities. Despite having a steady income, their monthly expenses and debt repayments left them with little disposable income. After a thorough assessment, they were deemed eligible for a Joint IVA. They provided comprehensive details of their financial status, including income, expenses, and assets, to their Insolvency Practitioner. This transparency allowed for a realistic payment plan that both creditors and the couple could agree upon, highlighting the importance of full disclosure in the eligibility process.

Comparing a Joint IVA with Other Debt Solutions

Joint IVA vs. Debt Relief Order (DRO)

A DRO may be suitable if each partner’s debts do not exceed £50,000, and they have a maximum spare income of less than £75 per month, with assets less than £2,000. However, DROs are not available to homeowners and are only accessible through an approved debt adviser. In contrast, a Joint IVA may be applicable for homeowners and typically manages larger debts.

For example, if John and Lisa, a couple with a joint debt of £45,000 and no significant assets, were renting their home, they might consider a DRO. However, since they own a property, a Joint IVA would be more appropriate. The Joint IVA allows them to retain their home while managing their debts, a critical factor for homeowners who wish to avoid losing their property.

Joint IVA vs. Bankruptcy

Bankruptcy can discharge debts after 12 months, but it carries the risk of losing your home if equity exists. The cost of bankruptcy is £680. A Joint IVA may be preferable if you wish to protect your home and avoid the stigma of bankruptcy, although it requires a longer commitment of typically five years.

Consider Rachel and Mike, who are contemplating bankruptcy due to overwhelming debt. They wish to avoid bankruptcy because it might lead to the sale of their family home. Instead, they choose a Joint IVA, which allows them to retain their home by including a clause to release equity in the final year. This decision, while requiring a longer commitment, provides them with peace of mind and stability.

Joint IVA vs. Debt Management Plan (DMP)

A DMP involves repaying the full amount of debt without writing any off and is not legally binding on creditors. Creditors are not obliged to freeze interest or charges, unlike an IVA, which is legally binding once approved. For couples with significant debts, a Joint IVA might offer more certainty and protection.

Imagine Emma and Jake, who initially opted for a DMP to manage their debts. However, they soon realised that the lack of legal binding meant some creditors continued to charge interest, making it difficult to reduce their overall debt. They switched to a Joint IVA, which provided a clear path to debt resolution with the added benefit of legal protection from creditor actions.

Step-by-Step Guide to Applying for a Joint IVA

Applying for a Joint IVA involves several critical steps that ensure both partners are on the same page and that the solution is tailored to their specific situation. Here’s a detailed guide:

1. Assess Your Debts: Calculate the total amount of unsecured debts for both partners. Make a comprehensive list that includes credit cards, personal loans, overdrafts, and any other relevant unsecured debts.
2. Seek Professional Advice: Consult with a licensed Insolvency Practitioner to understand your options. They will provide a detailed analysis of your financial situation and suggest whether a Joint IVA is the right solution.
3. Prepare Your Proposal: Work with your Insolvency Practitioner to draft a proposal for your creditors. This proposal should include a realistic repayment plan based on your combined income and essential expenses.
4. Creditor Meeting: Your proposal is presented to creditors. 75% by value must agree for the IVA to proceed. This meeting is crucial as it determines whether your proposal will be accepted and legally bind your creditors.
5. Commence Payments: Once approved, begin making agreed monthly payments. Ensure that these payments are made on time to maintain the agreement’s validity and avoid complications.
6. Completion: After the term, any remaining unsecured debt is written off. This provides a fresh financial start, free from the burden of past debts.

Throughout this process, communication and transparency with your Insolvency Practitioner are key. They will guide you through each step, ensuring that your proposal is viable and that you understand the implications of entering into a Joint IVA.

Common Mistakes to Avoid

When considering a Joint IVA, it’s essential to be aware of potential pitfalls that could hinder the process or lead to an unsuccessful arrangement. Here are some common mistakes to avoid:

• Not Seeking Professional Advice: It’s crucial to get regulated advice before committing to any debt solution. Without expert guidance, you might overlook better-suited alternatives or misunderstand the terms of an IVA.
• Ignoring Assets: Ensure you fully disclose all assets, as hidden or forgotten assets can cause issues. Failure to do so might lead to the failure of the IVA or legal complications.
• Lack of Commitment: Both partners must be committed to the terms of the IVA to avoid failure. A lack of commitment can lead to missed payments, risking the IVA’s success.
• Overestimating Income: Be realistic about your income and expenses. Overestimating your ability to pay can lead to unsustainable agreements and eventual default.
• Ignoring Lifestyle Changes: Entering a Joint IVA often requires lifestyle adjustments. Ignoring this necessity can lead to financial strain and difficulty adhering to the payment plan.

By avoiding these common mistakes, couples can increase their chances of successfully completing a Joint IVA and achieving financial freedom.

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