It is possible to include a guarantor loan in an IVA. However the Guarantor then becomes liable to pay the outstanding debt.
Included in this article:
- Can a guarantor loan be included in an IVA?
- What is the problem with a guarantor loan?
- Could you leave the loan out of your IVA?
- Can you do an IVA if you are a guarantor for someone else?
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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.
Struggling to get your head round all of this? We can help. Call us (0800 011 4712) or complete the form at the bottom of this page. The advice is free and confidential.
What is the problem with a Guarantor Loan?
A guarantor loan is money lent to you on the understanding that if you do not pay it back, someone else (the Guarantor) will have to do so on your behalf. In these circumstances, 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 don’t pay your loan for any reason the finance company will contact your guarantor and demand they start paying on your behalf.
Where your Guarantor cannot or will not pay the debt, the loan company can take legal enforcement action against them.
Can you leave the 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 else?
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.
Need help to start an IVA? Give us a call (0800 011 4712) or complete the form at the bottom of this page.