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.
- Do you have to included debt owed to family in your IVA?
- What is the advantage of including these debts?
- Can you keep paying friends and family debts?
- What about paying them after your IVA is over?
Want help to start an IVA?
Give us a call: 0800 011 4712 or complete the form below to speak to one of our experts
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.