Guarantor Loan and IVA

Guarantor Loan and IVA

It is possible to include a guarantor loan in an IVA. However the Guarantor then becomes liable to pay the outstanding debt.

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What is a Guarantor Loan?

A guarantor loan is money lent to you on the understanding that if you do not pay someone else (the Guarantor) will have to do so on your behalf. They become responsible for maintaining the ongoing payments or paying the balance in full.

You can ask anyone to act as your guarantor. Commonly it would be a family member or close friend. Before you get the loan they will have to sign an agreement to confirm they understand they could become liable for the outstanding amount.

If you do not pay your loan for any reason the finance company will contact your guarantor and inform they that they must start paying on your behalf.

If a Guarantor cannot or will not pay a debt they have guaranteed the loan company can take legal action against them to enforce its repayment.

Can a Guarantor Loan be included in an IVA?

As an unsecured debt a guarantor loan can be included in an IVA. Once the Arrangement is accepted you are legally protected from the loan company in the same way as any other creditor.

However the person who has guaranteed the loan is not protected. They then become responsible for making the payments instead of you.

If they can afford to do this it may not be a major issue. There is nothing to stop you agreeing to pay them back after your Arrangement has finished if you wish.

If you start an IVA and your Guarantor cannot afford to pay the loan they may be forced to start their own debt management solution.

Can you leave a Guarantor Loan out of your IVA?

You might consider leaving your guarantor loan out of your IVA. This way you could avoid the guarantor having to pay it or even learning about your debt problem. However it is unlikely you will be able to do this.

You will not be allowed to include a specific amount in your living expenses budget to maintain the loan payments. If you try your other creditors are likely to reject your application on the basis that they are being treated unfairly.

As such the only option would be to try and keep paying the loan from your agreed expenses allowances. However this will put you under considerable financial pressure and may result in you not being able to maintain your IVA payments.

If possible it is best to pay off a Guarantor Loan before starting your IVA. Your guarantor is then released from their responsibility. They will not be liable if you start the Arrangement with your remaining creditors.

Can you start an IVA if you are a Guarantor for someone elses Debt?

There is nothing to stop you applying for an IVA if you have agreed to act as a guarantor for someone else. However you must declare the loan you guaranteed in the list of your debts.

Once the Arrangement is in place if the person responsible for the loan stops paying you will be protected. The loan company cannot chase you for the money.

Having said that the Arrangement only protects you. Legal action to recover the debt can still be taken against the person who took the loan in the first place.

If you are a Guarantor and start an IVA is should not affect the person who borrowed the money. As long as they continue to make the agreed repayments there should be no problem.

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14 thoughts on “Guarantor Loan and IVA

    Donna says:

    My ex partner got a car on finance with my name as a guarantor. He has recently set up an iva with the company in question as part of it and is paying regularly. They are now hounding me to pay the amount that i know my ex is paying through his iva. Where do I stand on this as surely they would be getting 2x the amount for onw debt.

      Hi Donna

      If your ex has included a loan in his IVA that you guaranteed the loan company can legally chase you for the debt as soon as the Arrangement is put in place. His IVA does not protect you.

      When someone starts an IVA it often means they will not repay all the debt they owe. Typically they may only pay back a small percentage of the outstanding debt. As far as they are concerned the remaining balance is written off. However because you guaranteed this loan the loan company is allowed to chase you. You are held responsible for maintaining the normal payments.

      The loan company is allowed to start chasing you straight away. This does not mean the debt will be paid twice. They will continue to enforce payment just until the total (including interest charges) is paid in full.

    Connor says:

    Hello I have a iva and I am a guarantor for a loan. I forgot to put this debt into my iva and now the loan has stopped being paid what are my options? Thank you.

      Hi Connor

      You have to speak to your IVA company and see if this debt can be added to your IVA. If the amount is less than 10% of the total debt currently in the Arrangement your IVA company should be able to add it. However if it is greater than 10% it can only be added by calling a variation of the Arrangement. In other words all the creditors including this new one will have to vote on it. The IVA company would normally offer them a sweetener in the form of adding an extra 12 months payments if they say yes.

      If you do not like the sound of having to pay for an extra 12 months or your IVA company will not help you then the only alternative option available is letting your IVA fail. You could then consider starting a new arrangement adding this new creditor from the start. Alternatively if you are not a home owner bankruptcy may be a faster and cheaper way of getting out of debt.

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