A joint debt is a debt taken out by two or more people but in most cases just by two and for the sake of simplicity in this article we will assume that there are just two parties to a joint debt or liability.
The joint parties to the debt may be a married couple, co-habiting partners, siblings who may live together, parent and adult child, business partners or some such parties who have something in common, be it family, personal or business.
Joint loans are attractive to the lender because each of the signatories to the loan is individually liable to repay it. If something goes wrong – for example if partners separate or one of the parties to the loan dies – the lender can go after the other party for all of the amount of the loan remaining unpaid. This is the principle frequently referred to as ‘joint and several liability’. What this means simply is that in law the borrowers are both jointly and individually liable to repay the debt.
Joint debts can be secured – such as a mortgage taken out by both parties on a jointly owned property – or unsecured – such as a joint current bank account.
The key thing is that both parties signed the original credit agreement when the debt was incurred.
If one party, being insolvent, enters an IVA and the other party, being solvent, does not, all of the unsecured debt of the insolvent party is entered into the IVA including the whole of any joint unsecured debt. Should the IVA be approved, creditors will expect to receive dividends on all of the unsecured liabilities in the IVA, including the joint unsecured liability. However, the solvent party, who is not in the IVA, will be expected to keep servicing the joint debt as well in accordance with the terms of the credit agreement or as re-negotiated by the solvent party directly with the lender. The lender of the joint loan will usually get repaid from two sources: dividends from the IVA and normal repayments from the solvent party. If the debt is not wholly repaid at the end of the term of the IVA, the solvent partner remains fully liable to repay all of the unpaid balance.
There are many other examples of joint and several liability: secured loans taken out by both parties; tenancy agreements entered into by both parties; HP agreements entered into by both parties; council tax and certain utility agreements where both parties sign up. Strangely, many credit card agreements are not joint liabilities, even though two (or more) parties may be card holders. This is because only one of the card holders was a signatory on the original credit agreement but the lender decided to offer the borrower the facility of making the borrower’s spouse or partner a second card-holder.
In a nutshell then, joint liabilities must be included in an IVA, regardless of the wishes of the solvent party. One way to avoid this would be for the solvent party to clear the debt prior to the IVA commencing.