Debt to Family or Friends and an IVA

Debt to Family or Friends and an IVA

Money owed to family or friends can be included or left out of an IVA. However it will be difficult to maintain any payments during the Arrangement.

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Do you have to included debt owed to family in your IVA?

If you owe money to members of your family or friends it will normally be on an unsecured basis. In theory therefore this debt should be included if you start an IVA.

Having said that you may not want to involve the people close to you. You are likely to feel a moral obligation that you should pay them back. In addition you may simply not want them to learn about the extent of your financial difficulties.

Given it is unlikely that these type of creditors will take further legal action against you to collect their debt you can leave them out. The problem however is that it will be very difficult to keep paying them during the Arrangement.

Debt owed to family or friends can be left out of an IVA given it is unlikely these creditors will take further legal action against you.

What is the advantage of included friends or family debt?

You may be able to speak to your family about your financial situation. If so and they are not relying on your to repay the money you owe them straight away it could be an advantage to include them in your IVA.

If they are listed as creditors they will be able to vote on whether or not your Arrangement should be accepted. Given that they say yes then it is increasingly likely that it will.

However, even if they do agree to the proposal, there must then be a second count of votes which leaves out the friends and family debt. On this second count, the IVA is accepted if 50% of the total remaining debt are in favour. This is an advantage over the normal 75% requirement.

Given your IVA is agreed at the second count, any family or friends listed as creditors will not normally be allowed to receive payments from the Arrangement.

Struggling to get your head round all of this? We can Help. Give us a call (0800 011 4712) or complete the form at the bottom of this page. The advice is free and confidential.

Can you keep paying friends and family debts?

You may want to continue repaying money you owe to family or friends. This is particularly likely to be the case if they have borrowed money on your behalf and would not be able to maintain the payments themselves.

The problem is that you cannot continue to pay these debts once your IVA starts. You are not allowed to include anything in your living expenses to cover them. This would be a preferential payment and would be a string reason for your other creditors to reject the proposal.

You may consider trying to make savings from your agreed living expenses budget to allow you to maintian the payments. However if they are large you are likely to find this very difficult and struggling to do so would put your IVA at risk.

You are not allowed to continue paying some of your unsecured debts if you start an IVA. This includes debts to family and friends.

What about paying family or friends after your IVA is over?

Once your IVA is completed you can start paying back any money you owe to family and friends. You are no longer insolvent and so this is no longer regarded as making a preferential payment.

In fact there is nothing to stop you paying more back to any of the creditors included in your IVA. However it would be very unusualy for you to want to or consider doing this.

This can be an ideal scenario if the person or people you borrowed from are not under pressure for you to repay the money you owe them immediately. You may be able to repay them quite quickly after your IVA as you will have no other unsecured debt payments to worry about.

Want to start an IVA but need advice about friends and family debt? Give us a call (0800 011 4712) or complete the form at the bottom of this page. The advice is free and confidential.

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4 thoughts on “Debt to Family or Friends and an IVA

    Bobby says:


    I am 38 with a good job earning around 30k a year. I have around £42k worth of personal, unsecured debt, and an additional 18k owing to my mum. I am struggling to make payments, using credit to pay credit. I have no assets (other than a car worth about 2k which I need for my job which is driving based).

    I have about £250 surplus to pay creditors in either an IVA or Bankruptcy IPA. My main issue is I need to pay my mum back regularly so an IVA seems the only option where I can do that. The IVA budget sheet suggests around £100 a month might be accepted to pay her.

    Also, I would have occasional overtime which seems like it might relieve the pressure a bit, whereas in an IPA from BR, all this would be swallowed.. However, my job isn’t 100% secure and if the IVA fails then…

    Any thoughts? Just thought I may have missed something here.

      Hi Bobby

      As highlighted above including money to maintain a payment to your Mum in your living expenses budget is not acceptable in an IVA. You need to look at it from the other creditors point of view. They will say why should they accept an IVA and write off debt for you if you want to continue paying one of your debts in full. The official receiver in bankruptcy will take the same view.

      As such with either solution the only way you can continue paying your Mum is if you are able to make savings from your agreed monthly expenses budget. This may or may not be possible depending on your circumstances.

      You mention you might earn occasional overtime. It is important to understand that if you are in an IVA this MUST be declared. As a rule of thumb 50% of the extra money you get will have to be paid into the Arrangement. As such only 50% of the extra would be yours to keep. In bankruptcy this is not the case. Generally speaking the official receiver is not so bothered with occasional overtime and you normally get to keep all of it.

      Given all of the above your choice is not clear cut. On the face of it if your job is not secure bankruptcy might be a better option. If your ability to pay stops your IPA payments just stop. However there is a risk that the OR will only allow you a car worth £1000 so you might have to change the one you have got.

    Catherine T says:

    I owe money to my ex partner and my dad can I pay them while on Iva plan for my debt

      Hi Catherine

      In theory, you can continue to pay back debt you owe to friends and family after you have started in IVA. However, it is not officially allowed and so will not be easy.

      The main issue is how would you afford to make the payments.

      You are not allowed to include any budget for paying back family debts in your living expenses. Remember, all your surplus income has to be paid into your IVA. So, the only way you will be able to keep up any form of payment, is make savings from your other agreed expenses. This will not be easy and ultimately could jeopardise your IVA payments.

      Earning extra money to cover these family debts isn’t likely to work either. This is because 50% of any additional money you earn will also have to be paid into the IVA…..

      Ideally it is best not to try and pay back friends and family at the same time as paying an IVA. If you absolutely can’t stop paying them, I would suggest an IVA may not be for you and you should consider a different solution.

      If you want to discuss this in more detail, by all means give me a call (0800 011 4712). The advice is free and confidential.

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