Married couple - joint debt solutions Debt solution case study
Summary: Married couple - joint debt solutions - this article examines the options open to a couple to address joint debts.
Background
Rob & Roberta are married with 2 dependent children. Before children, they enjoyed a reasonable lifestyle with two incomes. They used credit cards to cover large purchases but always managed at least minimum payments. However once Roberta went on maternity leave with their first child, income reduced at the very time expenses increased. 5 years and 1 further child later, they find themselves in £30,000 of debt, some in Rob's name, some in Roberta's and a joint loan and overdraft.
Single or Joint
Both Rob and Roberta are responsible for the joint debts. It would be possible for either of them to propose a single IVA or a single Debt Management Plan (DMP) but given the interlocking nature if their debts and expenditure, it is highly likely they would be financially better off in some kind of joint solution.
Benefits of an IVA
With 2 young children, Roberta has been unable to work full-time. After all necessary household and personal expenses are met, they have calculated that they only have £200/mth available for debt repayments. They live in rented accommodation and share a car worth about £3000. By proposing an interlocking IVA they are able to pay back all they can afford for a fixed period of time (usually 5 yrs). They will then be debt-free, be able to rebuild their credit rating and with their eyes on future home owning, will certainly be able to explore mortgage options
Benefits of a DMP
Although the IVA is tempting, with Roberta likely to return to work full time in the next year or so and with parents happy to take on some childminding/school run responsibilities, Rob and Roberta are already looking forward to more disposable income in the future. They have estimated that with increased income, they will be able to afford over £600/mth in debt repayments. For them, a DMP starting at £200/mth but rising when possible gives them the opportunity to repay the whole debt and avoid insolvency (as in an IVA).
The drawback of a single solution
The biggest problem for Rob & Roberta with a single debt solution is the joint loan and overdraft. They are jointly and severally liable meaning that each owes the whole amount of the joint debt until it's repaid in full. So if Rob or Roberta put the loan or overdraft into their IVA or DMP, the creditor would still request repayment from the one not in a debt solution.