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25/03/2019

Do Joint Debts require Joint Solutions?

25/03/2019

Do Joint Debts require Joint Solutions?

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It is not uncommon when people are in a personal or a financial relationship with each other, that they may acquire joint debts together.

The most common example of this is council tax, but can also include joint mortgage or rent arrears or even utility bills.

When people have joint debts, it is not unusual for one party in the relationship to require help, but not the other party. Equally, it’s not unusual for the financial difficulties of one party to cause financial difficulties for the other party, as they cannot meet their share of a joint financial obligation.

If this is the case and there are joint debts, the question often arises, do both parties need to seek debt advice and if so, do both parties need to use the same debt solution?

What is joint debt?

A joint debt is a debt that is owed by two parties together. The most common example is a husband and wife, but equally, it could also be a brother and sister; or a mother and their adult child.

This means they are both liable for it and can both be pursued in full for it by the person that is owed the money.

What it also means is that, where one party doesn’t pay the debt, the other party can be pursued for the whole debt and not just for their share of it.

It is not unusual in such situations, where one party begins to experience financial difficulties for the other party to suffer a detriment.

As an example, a husband who normally pays the council tax may start missing payments because of other debts that he has, without his wife knowing. The wife may then find she is in arrears and facing action from Bailiffs or Sheriff Officers (in Scotland), without her ever having known that the debt was not being paid.

If the husband then went and applied for his bankruptcy, the wife could be left solely liable for the full debt.

Do both parties need to seek debt advice?

It is not a precondition of seeking debt advice that if you are jointly liable for a debt with someone and cannot afford to make payments, that you must seek debt advice with them.

If you can take on the full debt yourself and maintain the monthly, minimum payments, then there is no requirement for you to seek debt advice. In actual fact if you do this and you don’t mind that the other party cannot make their payments, then provided the other party has no other debts which they cannot pay, they may not need to seek debt advice themselves.

However, where the inability of the other party to pay their debt means you cannot pay your debts, then it may be necessary for both of you to seek debt advice.

Do both Parties need to choose the same solution?

The first thing that should be noted is where there are two parties struggling with a joint financial obligation, there is no requirement for both of them to seek advice together.  They may choose to seek their own independent advice and where relations between both are strained, this is often advisable.

Second, it is not necessary where two parties have a joint debt and both need debt advice, that they both use the same debt solution for dealing with their debts.

Other than the Debt Arrangement Scheme in Scotland, most formal debt solutions in the UK are individual to the person in debt anyway, so joint solutions are not available and that means you chose the solution that is correct for you.

This may mean a husband enters into a Protected Trust Deed in Scotland or an Individual Voluntary Arrangement (IVA) elsewhere in the UK, but their wife may choose a Bankruptcy.

Interlocking IVAs

However although debt solutions across the UK tend to be individual to the person who is in debt, it is possible to get an interlocking Individual Voluntary Arrangement (IVA) in England, Wales and Northern Ireland, which is strictly speaking two IVAs, although they are administered together, as if they were one solution, and only one payment is made by both parties to the IVA.

This can be useful for a husband and wife where both have debts and an IVA is the correct solution for both them.

Unfortunately, there is no equivalent in Scotland for Protected Trust Deeds as an Interlocking IVA, although when making offers to creditors, Trustees will often draw a creditors attention to the fact the other party to a joint debt is also applying for a Trust Deed and, therefore the returns to the creditor will be greater than is presented in one Trust Deed on its own. This may often persuade the creditor to agree to the Trust Deed proposal.

The correct solution is the one that is correct for you

The important thing about joint debts is realising, where you have them, that there may be consequences for the other party who is jointly liable with you if you enter into a debt solution. You may, therefore, wish to discuss this with them beforehand.

Second, you also need to remember that the correct solution is the solution that is correct for you.

Basically, you need to make the decision that is best for you: the other party has to take their own advice as to what is best for them.

If you are struggling with joint debts and want advice on what is best for you, or how using a debt solution will affect the other person that you share a financial obligation with, speak with a  Creditfix Adviser today on 0808 2234 102.

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