An Individual Voluntary Arrangement (IVA) is a popular debt solution designed to help UK residents struggling with unmanageable debt. However, given the significant financial commitment, it’s essential to carefully consider how it might impact your partner’s financial situation.
Thankfully, an IVA should only ever affect your partner if you have joint debts with them.
What is an IVA?
An Individual Voluntary Arrangement (IVA) is a formal debt solution available to residents of the UK who are struggling with unsecured debts that have become unmanageable. Examples of debts that can be included are personal loans, credit cards, overdrafts, and council tax arrears.
It is a legally binding agreement between you and the people you owe money to (your creditors) where you agree to make affordable repayments in regular instalments over a fixed period, which is typically five or six years. In return, your creditors agree to write off any remaining debt at the end of the repayment period.
An IVA can be extended under certain circumstances, such as if you miss payments or you’re approved for a payment break due to temporary financial difficulties. You can also settle your IVA early if you’re in a position to make a lump sum payment that clears your outstanding debt.
IVAs can help you avoid bankruptcy as they allow you to deal with your unsecured debts without the long-term consequences. They are managed by a qualified Insolvency Practitioner (IP), who will communicate with your creditors for the duration of your arrangement and distribute your payments on your behalf.
How much debt do you have?
How does an IVA affect credit rating?
Unfortunately, an IVA will have a negative impact on your credit rating as it means you’re struggling financially and can’t afford to repay your debts as they’re due.
Like most debt solutions, it will be visible on your credit file and the Individual Insolvency Register for six years from the date the IVA commences. During this time, your credit score will be damaged and you’ll struggle to access most credit facilities.
Having an IVA on your credit file can make it difficult to get a loan, mortgage, credit card, bank account, and even a phone contract. However, once six years pass, the IVA will be automatically removed from your credit file and you’ll be free to start rebuilding your credit score.
Can you use an IVA to settle joint debts?
While an IVA can only be applied for by a single individual, debts that are jointly owned can be included.
However, it’s essential to note that joint debts are only applicable to the individual’s share of the debt. This means that the other party will remain responsible for their share and the creditor can continue to pursue them for payment unless they are willing to consider a formal debt solution of their own.
Additionally, if you have a financial link with your partner, such as a joint bank account with an overdraft facility or mortgage, your partner’s credit file may still be indirectly impacted by your IVA, even if they’re not responsible for the debt.
It is a common misconception that you can get a joint IVA, but this isn’t true. The closest thing to a joint IVA is an interlocking IVA, which is still two separate IVAs, but both of your monthly payments are combined into the same monthly payment. This can be a useful option if both you and your partner’s personal debt levels are too low for two standalone IVAs.
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Can my partner’s income be used to pay off an IVA?
There is no universal answer to whether or not your partner’s surplus income can be used to settle your IVA. Technically, there is nothing stopping your partner from making an offer of payment to pay off your IVA if they wish to do so.
However, it’s not possible to say what the outcome of that offer would be without having an in-depth knowledge of your IVA. Even if your IP is happy with this arrangement, your creditors will more than likely also need to agree to this happening.
If your partner has agreed to use their disposable income to pay off your IVA, contact your IP to discuss it in further detail. They will review your circumstances and let you know whether it would be a possibility and, more importantly, whether it would fully resolve your debt.
Will I still be able to help with household expenses while in an IVA?
You should still be able to contribute to your living expenses as normal while in an IVA. Your IP will carry out a household income and expenditure assessment to determine your income and outgoings when creating your IVA proposal and set your monthly IVA payments accordingly. Because it’s done this way, your IVA should have no impact on your ability to afford your bills.
During this step, your IP will require copies of financial documents, including payslips, bank statements, and details of any assets you own.
It’s important to provide a detailed outline of your total household expenses to allow your IP to accurately assess your financial situation and create a realistic repayment plan that you can maintain for the duration of your IVA.
In short, you should still be able to pay for essential household expenses while you’re in a formal debt solution like an IVA. Your IP will work with you to create a budget that allows you to live within your means while also repaying your debts.
Will an IVA affect my partner?
Generally speaking, an IVA might affect your partner if you have a financial association with them, such as a joint bank account or a mortgage.
However, while your financial activities won’t usually directly impact your partner’s credit file or credit rating, they could indirectly affect their ability to obtain credit in the future. This is because lenders will take into account the fact that you have an IVA when assessing any joint financial applications.
Your partner’s credit history will only ever be affected if they are financially linked to you and you have missed payments on joint accounts or the joint account is included in the IVA. It’s important to consider these factors when deciding whether an IVA is the right debt solution for you.
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My ex-partner used my address for their IVA. Will this affect me?
If you don’t have any financial links with your partner when they enter into their IVA, it shouldn’t impact your credit – even if they did use your address when they applied.
On the other hand, if you do have, or have previously had, any financial ties to this individual, you should contact the main credit reference agencies (Experian, TransUnion, and Equifax) to see if any of your credit reports mention your ex-partner as a financial association.
Simply living in the same house does not mean that you are connected in any way financially. The only way you can be financially linked to someone is if you took out joint debts together, like a mortgage or a bank loan.
Can I leave out a mortgage with my partner if I get an IVA?
Legally, all income and expenditure must be declared in your IVA application. Remember, secured debts like mortgages and car loans won’t be tackled by the IVA, but you should still let your IP know that you have them.
The latest IVA protocol introduced new rules around equity release. Previously, homeowners with equity of £5,000 or more were required to release it in the final year of their arrangement. Under the new rules, you don’t have to worry about re-mortgaging. Instead, if you have more than £10,000 in equity, your IVA will be extended by 12 months to allow you to pay an equivalent amount to your creditors without putting your home at risk.
This means that, if you have less than £10,000 in equity, your IVA will last the standard five years and you won’t need to release equity.
Would a joint loan with my partner be included in my personal IVA?
A joint loan means that both you and the other party are jointly and severally liable for the entire loan. This means that you’re both equally liable for 100% of the debt, not just 50% of it.
If you are dealing with your liability by entering into an IVA, this doesn’t mean that your partner’s liability has been dealt with at all. They will still need to pay back all of the debt that remains after your IVA contributions have covered a portion of it.
If, as an example, the debt is for £5,000 and your IVA returns £1,000 to the lender, your partner will still be required to pay the remaining balance of £4,000, unless they are also entering into a legally binding arrangement, such as an IVA, for their debts.
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How do I know if an IVA is the best solution for me?
Whether an IVA is the best formal debt solution for you depends on your individual circumstances. Some factors to consider include the type and amount of debt you owe and your monthly income and expenses.
It’s also essential to understand the implications of an IVA, such as the impact on your credit rating and the risk of failure if you’re unable to keep up with your repayments. Ultimately, the decision to pursue an IVA should be based on careful consideration and a thorough understanding of your financial situation.
If your IVA fails, all legal protections will be lifted and you’ll become liable for the debt again. To prevent further legal action, it might be a good idea to enter into another debt arrangement.
Remember, an IVA isn’t the only option. Depending on your circumstances, there may be several alternative debt solutions available to you, such as Debt Relief Orders (DROs) and Debt Management Plans (DMPs).
Always seek professional debt advice before considering a formal debt solution like an IVA. A debt advisor will assess your financial situation and recommend the most appropriate debt solution for your financial circumstances.
Conclusion
If you’re considering a formal debt solution like an IVA, it’s normal to worry about whether it could impact your partner and their financial situation.
The good news is, the only way an IVA could impact your partner is if you have any sort of financial connection with them, such as a joint mortgage or bank loan.
Don’t hesitate to ask your IP about the potential impact of the IVA process on your partner. They should be able to let you know whether any of the included debts are likely to cause any harm to your partner and their financial situation.
