Married couple - different debt solutions Debt solution case study

Summary: Married couple - different debt solutions - This paper examines the options open to a couple where each is in debt, but separate solutions rather than a joint one is advisable.

Background

Douglas and Doris were both in debt. Much was caused by Douglas's business venture failing, but if truth were known they had both been guilty of overspending. They had a small joint overdraft; otherwise Douglas had £25000 of debts in his name, and Doris the same. They owned their house - or at least the mortgage company did - but the joint equity probably amounted to £30,000. Both of them worked, Douglas in the finance sector and Doris in the education sector. They had fought a losing battle over debt repayments, and although up to date, they knew they were only surviving by drawing further credit.

The IVA route

With over £50,000 of combined debts and assets at around £30,000, Douglas and Doris might well find that an interlocking IVA (i.e. presented as a joint IVA) would be a good way forward. However Douglas was uneasy. His job was such that an IVA (a declaration of insolvency) would be frowned upon. His preference was to repay all his creditors. Doris felt strongly that repaying her debts would take her post-retirement age and needed a speedier solution.

Comparing incomes

Douglas earned twice the income that Doris did. With the help of a debt advisor, they calculated that after all joint household and personal expenses were met they had £600/mth available for debt repayments - certainly not enough to meet contractual repayments. Given their relative incomes - Douglas was entitled to £400 of the joint disposable income, and Doris £200.

Different solutions

Douglas decided a Debt Management Plan (DMP) was best for him. With interest hopefully stopped and the fee to a DMP company kept reasonably low he could clear his debts in around 6 years. Doris offered her £200/mth in an IVA which was accepted by creditors. They noted that her share of the equity was around £15000, but realised that an IVA still offered them their best return. Given their ages, it was recognised that Doris was unlikely to be able to release any of her share of the equity towards the end of the IVA by remortgaging, so creditors insisted on a 6th year of IVA payments. They would be debt free at around the same time paying their £600/mth but living comfortably as well. And all-importantly, Douglas had avoided the insolvency route.

Joint overdraft

The joint debt had to appear in Doris' IVA and Douglas' DMP. They were each responsible for the whole debt.