Normally only secured debts are excluded from an IVA. However there are some occasions when it may be possible to exclude unsecured debt as well.
- Which debts are excluded from an IVA?
- Can you ever exclude an unsecured debt?
- Are you able to exclude debt owed to friends and family?
- Could you leave out joint debts?
Which debts are Excluded from an IVA?
You always exclude secured debts from an IVA. Things like your mortgage or a loan secured against your car cannot be included. If you fail to maintain the payments towards these debts the property they are secured against could be repossessed.
As long as the ongoing payments are reasonable an amount to maintain them is included in your living expenses budget.
Generally speaking all your unsecured debts have to be included in the Arrangement. This is because for your IVA to be accepted they must all be treated equally.
If you exclude any of your unsecured creditors the ones included will feel they are being treated unfairly. As such they are unlikely to agree to your IVA.
Can you ever Exclude a Unsecured Debt from an IVA?
In certain circumstances it may be possible to exclude an unsecured debt. However this will only be allowed if your ongoing income and therefore ability to pay the Arrangement depends on it.
One example of this is if you need a credit card to pay for monthly business expenses. If being without this facility would mean that you lose your income you may be able to keep a card. However you would have to commit to paying off the balance in full each month.
The fact that you plan to exclude an unsecured creditor must be highlighted to the others in your proposal. They are only likely to agree if they understand the whole Arrangement would be impossible without it.
Are you able to exclude Debt owed to Friends and Family?
Debts owed to friends and family can be treated in different ways. Although they are normally unsecured it is possible to leave them out of your IVA.
However this can only be done if the individual you owe money to accepts you will not be able to continue repaying them during the Arrangement. They must agree to suspend any repayments they receive until your IVA is finished.
If they are prepared to wait for repayment until after your IVA it may actually be an advantage to include them. By doing so they can vote on the Proposal and may positively influence its acceptance. However even though they are included they are unlikely to receive dividends during the Arrangement itself.
You should not keep friends or family debt out of your IVA but then still try to pay them. You will not have sufficient cash to do this and doing so will mean you will struggle with your IVA payment.
Could you exclude Joint Debts from an IVA?
If you have a joint debt which is unsecured you cannot exclude it from your IVA. It must be added in the same way as all your other unsecured creditors.
However it is important to remember that the other joint account holder will remain liable for 100% of the outstanding debt. They are of course allowed to continue making the payments but the cash must come from their own income.
If they do not have the funds available they will need to consider starting a debt management solution of their own.
If you have joint debts a common solution is to start a Joint IVA. However this is not always the most sensible. The other party should also weigh up other debt management options.