Guarantor Loan and IVA

28/03/2023
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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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.

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53 thoughts on “Guarantor Loan and IVA”

    Richard says:
    06/03/2021 at 21:34

    I have an IVA with CreditFix and the IVA included a Guarantor loan. I have been paying tbe IVA for 4 years now and my dad took over the guarantor loan and has since finished paying it off.

    After looking through the original IVA documents I can see that of the original debt and creditors the amount and name of the guarantor loan are included in the IVA agreement.

    Does this mean I’m paying the guarantor loan on top of what the guarantor has already paid?

    I’m on course to pay well over the amount I originally owed by the end of the IVA due to an improvement in my circumstances over the course of the agreement and I’m just interested to see whether there has been a mistake, and I’m paying too much into my IVA or my guarantor is owed money back

    Reply
      James Falla says:
      08/03/2021 at 17:27

      Hi Richard

      Where a guarantor pays off the Guarantor loan during your IVA, the IVA company should be made aware of this by the loan company. They would then stop making further contributions to this creditor. However, your monthly IVA payment would not go down as a result of this. Your other creditors will simply receive a greater percentage of what they are owed.

      You said you believe you will repay more during the course of your IVA than what you originally owed. This can happen in an IVA (although it is rare). The IVA company is allowed to continue taking payments from you until 100 % of the original debt is paid + their full costs and fees + interest on the at 8% pa. If the total of this is paid before the standard end date of your IVA, then Arrangement will finish early. If not you will keep making payments until the agreed end date.

      Reply
    Clare P says:
    07/04/2021 at 12:28

    Hi I’m enquiring about the impact an iva would have on a guarantor for an amigo loan? Thanks

    Reply
      James Falla says:
      07/04/2021 at 12:36

      Hi Clare

      If you include an Amigo loan in an IVA, Amigo will treat the loan as being in default. They will then go to your guarantor for the money. The guarantor is liable for 100% of the outstanding debt with them. There is no way around this. The IVA will help repay any other debts you have, but the Amigo loan will still have to be paid in full by your guarantor.

      If your guarantor is unable to pay the loan on your behalf, you will have to put the idea of using an IVA on hold for the time being.

      The way forward might be for you to continue paying the Amigo loan until it is repaid in full. In the meantime, you could start a debt management plan to reduce the payments on your other debts. Once Amigo is paid, you can then start an IVA for your remaining debt or stick with the debt management plan.

      Reply
    Clare P says:
    07/04/2021 at 17:58

    Thanks for your quick response it’s for my son I’ve advised him to look into a debt management plan

    Thanks

    Reply
    Daniel says:
    29/04/2021 at 13:39

    Hi, could I ask for clarification. If an Amigo Loan is added to an IVA, Amigo accepted the proposal, with two modifications of an extra £30 a month and extending IVA by a year, are they still able to chase the guarantor even though they’ve accepted the terms of the IVA?

    Reply
      James Falla says:
      10/05/2021 at 12:58

      Hi Daniel

      It does not matter whether Amigo agree to the IVA or not, they are still legally entitled to chase the guarantor for the full balance of the debt. The only time they could not do so is if they have specifically agreed not to in return for one of the modifications you accepted. However, if you do not have this is in writing from them, they will certainly pursue the guarantor for the balance.

      I have never come across an example of where a guarantor loan company like Amigo or George Banco would not pursue the guarantor if the debt was included in an IVA.

      Reply
    R G says:
    15/07/2021 at 11:57

    Hi. I’m a guarantor for a family member for dividebuy. They’ve taken out an IVA without telling me, and included the dividebuy agreement on it but it hasn’t been set up properly yet so they are asking me for the money now. Apparently dividebuy have agreed to be paid by the IVA company so once this is set up am I free of responsibility for this?

    Reply
      James Falla says:
      15/07/2021 at 12:10

      Hi RG

      If you have signed as a guarantor, it means that if the person who borrowed the money does not pay, you then become liable for 100% of the outstanding balance.

      This is usually what happens if the person starts an IVA. Once the IVA is up and running, they stop paying the guarantor loan. The loan company is then legally entitled to collect 100% of the balance from the guarantor.
      Even if the IVA runs its course, the creditor is likely to be repaid far less than what they are owed. As such the guarantor is almost always liable.

      In my experience, even if Dividebuy agree to the IVA, they will still come after you for the balance. I am pretty much sure this will happen unless you have something in writing from them that says otherwise.

      Reply

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