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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Does Debt owed to Family or Friends have to be included in an 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.

Can you keep on paying debt owed to Family or Friends?

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.

Is there any Advantage in including debt to Family or Friends?

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 proposal should be accepted. Given that they say yes then it is increasingly likely that it will be.

However if the IVA is agreed any family or friends listed as creditors will not normally be allowed to receive payments from the Arrangement. As such the main advantage of including them is generally to ensure its acceptance.

You can only list family or friends as creditors in your IVA if they can prove that you owe them money.

Can you pay off Family or Friends once you have completed your IVA?

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.

You are allowed to repay debt owed to family and friends after your IVA is completed. All of your disposable income will be available to help you do this as quickly as possible.

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2 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.

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