Personal guarantee debt and an IVA

Personal guarantee debt and an IVA

You are liable for business debt after the business has failed if you gave a personal guarantee. These debts can then be included in an IVA.

Included in this article:

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Can personal guarantee debts be included in an IVA?

Small to Medium sized company directors are often required to give a personal guarantee to pay company debt if the business stops trading.

As a director, you will commonly be asked to give a personal guarantee (or PG) to gain access credit facilities such as a business overdraft, credit card or loan.

Although the original debts are business related, if the lender calls on the personal guarantee they can be included in an IVA. This is because you become personally liable to pay the balance.

At this point they are treated in exactly the same way as any other personal debt you owe.

You should make your IVA company aware of any personal guarantee you have given even if your business is still paying the debt. Provision can then be made to protect you if it stops trading in the future.

How much will your IVA payments be?

Your IVA payment is not directly related to the amount of debt you owe. It is normally based on your surplus income. In other words, the amount you have left from your income after all of your reasonable living expenses have been accounted for.

Because of this, it is more than possible that two people with the same amount of personal guarantee debt will end up paying different amounts into their IVA.

If your business has recently failed and you have no income of your own, your partner or another family member can make payments into an IVA on your behalf.

In these circumstances, they will not necessarily have to pay all of their surplus income. The payment can be based on a reasonable amount relative to the debt owed.

The minimum IVA payment is normally £100/mth. However, this might have to increase depending on the amount of personal guarantee debt you owe.

Can you do an IVA without monthly payments?

Rather than offering a monthly payment IVA, it is possible for you to manage personal guarantee debts with a lump sum payment IVA.

This solution is based on an offer of a single cash sum amount paid up front. Once agreed and paid, the IVA is then completed immediately. All outstanding debt in the arrangement (including personal guarantees) is then written off.

Given your business has recently stopped trading, you may have insufficient income to maintain monthly payments. As such, this lump sum option can be a useful solution.

The money required to pay the lump sum does not necessarily have to come from you. It can be made available by an third party as long as the funds come from a legitimate source.

What if a personal guarantee creditor rejects your IVA?

You can’t start an IVA without the agreement of your creditors.

Not all creditors need to accept. However at least 75% (by value) of those who respond to your proposal must say yes.

Given some of your personal guarantee debts may be relatively large, they could prevent you using an IVA if they reject.

If this happens, you will likely need to chose a different solution. The options are relatively limited. Normally you will need to consider either a debt management plan or going bankrupt.

The solution you chose will largely depend on your personal circumstances. For example, if you are home owner, you might want to avoid going bankrupt.

Are you liable for business debt because of personal guarantees? Give us a call (0800 011 4712) or complete the form below). The advice is free and confidential.

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