Your car is not normally at risk if you start an IVA. You should be allowed to keep it as long as it is not excessively valuable.
- How is your Car affected by an IVA?
- What if the vehicle is on finance?
- What if your finance agreement ends during an IVA?
- Can car finance debt ever be included?
How is your Car affected by an IVA?
You can usually keep your car if you start an IVA. You are allowed to include a sufficient amount for its upkeep including fuel, insurance and other running costs in your living expenses budget.
You will have to disclose its value. There is no predefined maximum allowable value. However as long as you need it you should not have a problem if it is worth less than £8000.
If your vehicle is worth more than £8000 your creditors could demand that you to sell it and buy something cheaper. You would then have to release the difference into your IVA.
Your job may require you to have a car of a particular standard. If you use your vehicle for work or receive a car allowance from your employer you may be able to keep it whatever its value.
What if your Car is on Finance?
Car finance such as hire purchase or a lease agreement is a secured debt. As such it cannot be included in an IVA. You must maintain the agreed payments or the vehicle will be at risk of repossession.
An amount sufficient to cover the payment can be included in your living expenses budget. Your creditors will accept this as long as you have a clear need for the vehicle and the payments are reasonable.
You may be wondering what constitutes a reasonable car finance payment. Generally speaking it should not be more than the amount you are proposing to pay into your IVA each month.
You should check with your car finance company that they will be happy to maintain the agreement if you start an IVA. There should be no problem as long as the payments are maintained.
What if a Car Finance Agreement ends during an IVA?
After you have made the final payment towards a hire purchase agreement the vehicle becomes yours. If this happens during an IVA the money you were paying must then be added to the Arrangement.
The amount you pay into the Arrangement therefore increases. However its length does not reduce. The number of payments you have to make stay the same but the money your creditors get back goes up.
A lease agreement works differently. When this ends you will normally be allowed to keep the money you were paying to put towards a new car. However starting a new lease will be more expensive due to your poor credit rating.
Buying your vehicle at the end of a lease agreement is usually only be possible during an IVA if a third party can pay the required lump sum.
Can Car Finance debt ever be included in an IVA?
An IVA can help if you have a car on finance that you no longer want or can afford to pay. The way this works is that you hand the vehicle back to the finance company before you start your application.
The finance company will then sell the car. If there is any shortfall you would normally be liable for this. However the debt then becomes unsecured. It can therefore be included in your Arrangement.
Before you hand back your vehicle remember that an IVA will reduce your other debt payments. This could free up enough cash to enable you to continue paying the finance thus allowing you to keep it.