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Dealing with different debt situations

By 25th March 2019 No Comments

If you’re in a relationship and you have debt then one way or another your debt situation will need to be addressed in partnership with your other half as it is going to have some degree of impact on them.  If you both have debts, then tackling them together can make sense both practically and emotionally, but remember that even though you may both be in debt, there may be differences in other areas of your life which mean that a debt-management solution which is perfect for one of you may not be perfect for the other.  Therefore, it is important to look at your individual situations regarding the three key aspects of debt-management solutions

The exact nature of your debts

When dealing with couples and debt, possibly the single, biggest question is whether the debt was taken out in the name of one or both parties.  If it was taken out in the name of only one half of the partnership then only that half of the partnership is responsible for it.  If it was taken out in both names, then it’s odds on that both parties are “jointly and severally liable” for it, which basically means that if one half of the couple opts for an insolvency solution (which may be the best option both for them individually and for the pair as a couple) and the other half of the couple opts for a repayment strategy (which, again, may be the best option both individually and jointly), then they will have to repay the whole of the previously-joint debt, rather than just “their half” of it.

The exact division of your income

Let’s look at an extreme situation.  Let’s say one of you is unemployed and likely to remain so for the foreseeable future (perhaps due to ill health), whereas the other has a good income and in-demand skills which means that they are likely to be able to keep earning a good income for the foreseeable future.  If you were to seek out debt-management advice on an individual basis, it’s fairly obvious that there is a very high chance you would be recommended different solutions due to your differing circumstances.  You may therefore want to take some time out to consider whether or not it might be best for you both (individually and together) to approach your debts as though you were not in a relationship as, financially-speaking, you are in completely different places.  For the sake of clarity, this approach has nothing to do with doubting or trusting your partner or indeed anything emotional.  It’s about recognising the fact that being in a relationship does not mean that you need to do everything together at all let alone in exactly the same way.

The exact ownership of assets

While creditors will usually be interested in any and all assets owned by a debtor, regardless of whether they own them individually or jointly, from a debtor’s perspective, possibly the one asset which matters above all others is the house.  Assuming the house is owned jointly, each of you will have an equal share of the equity and so if one of you goes bankrupt (or is unable to complete an IVA) then you should assume that the family home will need to be sold to release their share of the equity in it (there are a few exceptions to this).  There is, however, nothing to stop you from buying them out of their share of the equity if your circumstances allow.  This is possibly the strongest possible argument in favour of individual debt solutions, especially when insolvency may be an outcome.  If you opt for a joint IVA then its failure can lead to both of you losing your home (unless you can get help from family, friends or other sources) whereas if you opt for individual solutions, then you give yourself a bit more room to manoeuvre through changing circumstances.

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