The idea that Love Conquers All has been the theme of poems, songs, plays, films and even great paintings such as Caravaggio’s Amor Vincit Omnia. In the bible we are not surprised to find many references to the power of love. St Paul wrote: ‘Let no debt remain outstanding, except the continuing debt to love one another, for he who loves his fellow man has fulfilled the law’.
So how does a couple, whether married or co-habiting, cope with serious personal debt and is love the answer? Does it conquer all?
An Individual Voluntary Arrangement (IVA) is one solution for an insolvent person to address his or her debt problems. However, under the Insolvency Legislation a couple cannot offer a joint proposal to creditors for an IVA. However, each partner may individually offer to their creditors a proposal for an IVA, provided they are both insolvent. In other words two proposals are offered to creditors one from each partner and these two proposals are often described as being interlocking, insofar that creditors must approve both sets of proposals. In interlocking IVA proposals, if creditors approve one proposal and reject the other, then both sets of proposals are deemed to have been rejected.
Such proposals recognise the mutual financial dependency of the partners. Typically, each partner will have his or her own personal creditors and the couple may have one or more joint creditors. Each partner may have their own assets such as a car and they may jointly own assets such as a house. The statements of affairs of the partners provided in each of their IVA proposals will therefore differ to some extent in relation to liabilities and assets. Usually however, the Statement of Affairs contains a joint Income & Expenditure statement in which the joint living expenses of the couple are met on a basis proportionate to each partner’s individual income. For example, if one partner’s net income (after tax & NI deductions) is twice that of the other partner, then the joint Income & Expenditure Statement will show one partner paying two thirds of the household expenditure and the other partner paying the other third. The calculation of each partner’s disposable income (DI) will result in the higher earning partner’s DI being twice that of the lower earning partner.
From the point of view of creditors such interlocking proposals for IVAs are often attractive, since administration costs will usually be significantly lower than they would be if each partner were to offer a proposal for a ‘stand alone’ IVA. There are also benefits of simplicity where jointly owned assets (such as the equity in a house) can be dealt with in a mutual and consensual way, which might not be the case in two ‘stand alone’ IVAs.
In a scenario where one partner is solvent and the other is insolvent an approach frequently taken is for the insolvent partner to offer a proposal for an IVA with the financial assistance of the solvent partner. In such cases the solvent partner would have to retain sufficient DI to service his or her personal and joint debts on a normal ongoing commercial basis, but could contribute any remaining DI to the IVA of the insolvent partner. Such an IVA is frequently described as an assisted IVA. When such an assisted IVA is complete and the insolvent partner is issued with a Certificate of Due Completion, it is important to remember that the solvent partner continues to be liable for any balances of joint debts remaining unpaid.
While love might not conquer all in financial matters, it certainly helps to ensure that interlocking IVA proposals have a much greater chance of being approved by creditors and being completed successfully in supervision.