Vehicles and Your IVA
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If have a reasonable need to use a vehicle you’ll be able to keep one during your IVA. This could apply to a car, van, or motorbike.
Examples of a reasonable need could include:
It’s generally possible to keep the vehicle that you’re currently using.
If your car has become unreliable (or unsuitable for your needs) this should be addressed before your IVA begins. An individual voluntary arrangement typically runs for five years (or longer) and it will probably become harder to secure a new vehicle once it has begun.
An IVA takes account of your assets including any vehicle that you own outright.
There aren’t any clear rules regarding how much your vehicle can be worth, but your creditors are unlikely to object to you keeping a vehicle worth £5,000 or less if you have a reasonable need to keep it.
A vehicle worth more than £5,000 might (but won’t always) attract the attention of your creditors when they receive your IVA proposal. A vehicle worth £10,000 or more is likely to attract the attention of your creditors.
Free car valuations are available using online services such as Parkers.
You can attempt (in your proposal) to explain to your creditors the reasons why they should allow you to keep a vehicle of significant value.
If creditors object to you keeping a car of significant value you still have options. You could offer to sell the existing vehicle and buy a cheaper replacement (with the surplus funds paid into your IVA). Alternatively, you could offer some extra monthly payments at the end of your IVA to provide part of your car’s value to your creditors.
You do not own a vehicle that is subject to secured finance, so it is not considered to be an asset. This includes car finance agreements like:
It’s possible that you will receive an asset in the future if the vehicle transfers into your ownership when the finance agreement is completed. This could create an additional liability to your IVA creditors if the value of the vehicle is significant.
A car you operate isn’t considered to be an asset if it is owned by somebody else.
This could be the case if you have borrowed a vehicle from a relative.
Many people use unsecured loans to purchase vehicles.
If you have an unsecured loan that you used to purchase a car it will be included in your IVA. You will not pay this loan directly any longer and the lender cannot recover the vehicle from you.
Because you own the car outright it will be treated as an asset.
If you need to keep a vehicle you obtained using secured finance, you’ll need to keep making the payments. If you default on the payments the vehicle is likely to be recovered from you.
You’ll receive an allowance to continue paying for a vehicle on finance provided that the monthly payment amount isn’t excessive and you have a reasonable need to keep it.
There are some car finance providers that include insolvency clauses in their finance agreements. An individual voluntary arrangement (IVA) is a type of personal insolvency.
This type of clause creates a risk that the finance provider will recover a vehicle from you when you begin an IVA (even if you keep making the payments).
Some finance providers choose not to enforce their insolvency clauses if you maintain the regular payments. You can check this with the finance provider before your IVA begins.
Some vehicle insurers take the view that a customer entering a personal insolvency process adds to the risk they are underwriting. They may put a clause into a car insurance policy invalidating cover in the event that you enter an IVA.
Check the status of your policy before you proceed with the IVA and always disclose it to any new insurer at renewal.
Insurance policies that are paid monthly may be subject to a credit agreement. At renewal you may find that some insurers won’t offer you monthly instalments because your credit rating has been damaged by the IVA. Shop around because other insurers will still offer monthly payment policies.
Talk to your IVA supervisor before selling your car.
They may not object to the sale but in some circumstances the cash generated could create an additional liability to your IVA.
If your car requires expensive servicing or repairs get in touch with your IVA supervisor.
It might be possible to suspend payment for a month or two in order to fund essential repairs.
Any missed payments will usually get added onto the end of your IVA resulting in it lasting longer than initially expected.
You may have a debt from a previous vehicle finance agreement if you handed the vehicle back early or if it was repossessed.
This type of debt will be included in your IVA.
Your supervisor may allow you to obtain secured finance on a new vehicle if there is a genuine replace your current car. Bear in mind that the finance costs are likely to be very high as a result of your damaged credit rating.
Some people arrange for a relative to obtain a vehicle on finance that they will use. If you intend to do this check acceptability with the finance provider and also that your IVA supervisor will allow you to reimburse the cost to your relative.
A relative or friend could also buy a vehicle and lend it to you. Provided that you have not become the owner of the vehicle there should be no asset-related IVA issues.
Remember that being the registered keeper of a vehicle on the V5 does not necessarily mean that you are the owner of that vehicle. You can be the registered keeper of a vehicle owned by somebody else.
Once you have completed your IVA your credit rating may begin to improve. This is a slow and steady process rather than an overnight conversion to a good credit score
More vehicle finance options will become available to you but the associated costs may still be relatively high.
A debt management plan takes no account of your assets. Your creditors are unlikely to take issue if you operate a vehicle of significant value or if you’re paying a reasonable vehicle finance payment every month. Debt management will damage your credit rating and therefore your ability to get finance on good terms, but the negative effect on your credit score is likely to be less serious than an under an IVA.
A debt relief order is another type of personal insolvency. There is a strict rule that you cannot use this debt solution if you own a vehicle worth more than £1,000.
The bankruptcy process is also personal insolvency and takes account of the assets that you own. Assets tend to be treated less flexibly if you become bankrupt and you’ll need to justify to the trustee why you need to keep even a modestly valued vehicle.
For expert advice about starting an IVA or other debt solutions please contact us.
Our friendly advisers can discuss your vehicle needs as part of your debt advice consultation.
Author: Andrew Graveson
Qualified Debt Adviser & IVA-Guide.co.uk Founder
Page Last Updated: 31/07/2020