You will usually be allowed to keep your car if you start an IVA. However you need to be aware of the implications particularly if your vehicle is on finance.
Included in this article:
- Can you keep your Car if you start an IVA?
- What happens if your vehicle is on HP?
- What if you have a Lease Agreement?
- When can you include Car Finance debt in an IVA?
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Is my car at risk if I do an IVA?
You will normally be able to keep your car if you start an Individual Voluntary Arrangement (IVA). What happens if your car is on Hire Purchase (HP)? To find out more please visit: http://beatmydebt.com/individual-voluntary-arrangement-frequently-asked-questions/what-will-happen-to-my-car-in-an-iva
Can you keep your car if you start an IVA?
Owning a car is not generally an issue if you start an IVA. Given you need it you should be able to keep your vehicle as long its value is not excessive.
A sufficient amount for running costs can be included in your Living Expenses Budget. When completing this budget you will need to include amounts to cover things like annual servicing as well as fuel and insurance.
If you have pay monthly car insurance when it comes to renew you will normally have to stay with the same insurer. A different insurer is unlikely to give you a pay monthly deal as you will fail their credit check.
If your vehicle is worth more than the debt you owe it is unlikely that your creditors will agree with your IVA proposal without you replacing it with something less valuable.
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What happens if your vehicle is on HP?
A car HP agreement is a secured debt. As such it cannot be included in an IVA. Given you need the car you will be allowed to keep the agreement running. You can include a specific budget for this in your living expenses.
The only time you may not be allowed to maintain an HP agreement is if the payments are unreasonably high. There might be an issue if the amount you are paying towards your car each month is more than you are offering to pay into your IVA.
Before starting your application you should contact your HP company to inform them of your plan. Most will not be concerned about you starting the Arrangement as long as you maintain the payments.
If your HP agreement finishes during your IVA the money you save must be added to the Arrangement. As a result the amount you repay to your creditors increases. It does not reduce the length of the the IVA itself.
What if your Car is on a Lease Agreement?
A car lease agreement is treated in the same way as HP. You should be allowed to continue making the payments during your IVA as long as they are not unreasonably high. However you may face problems when the lease period ends.
The issue is you do not own the vehicle. If you want to keep it you have to pay a lump sum known as a balloon payment. However you will not have the cash available to do this unless you can borrow it from a friend or relative.
One solution may be to refinance the amount owing on the car. Alternatively you could hand back the vehicle and look to take a new one on a new agreement.
Because your credit rating is poor you will only be able to get vehicle finance from a sub prime lender. They will be more expensive. As such you may have to choose a cheaper vehicle so that the monthly payments remain within your budget.
When can you include Car Finance Debt in an IVA?
If you want to keep a vehicle which is on finance the monthly payments have to be maintained. As such in normal circumstances the debt cannot be included in an IVA.
However you may have decided that you no longer want the vehicle. Perhaps it is worth less than the finance outstanding and so is not worth paying for. Alternatively the ongoing monthly payments may simply be more than you can afford.
In these circumstances you can stop the payments and ask the finance company to repossess the car. An estimate of the debt that will still be outstanding after it is collected and sold can be added to your Arrangement.
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Hi
I have 2 cars one is worth about 2000 and the other is worth less than 1000. I use mine for work and my wife uses hers for school runs as we have 4 kids. We are on the verge of splitting up and considering an iva as she doesn’t want me there and I cant afford to pay the bills on my own as tax credits paid them? Will I lose the cars??
Hi Jamie
If you do an IVA there is no need to worry. You can keep both the cars. You would only have to worry if one of the cars was much more expensive. Generally speaking you can keep a car worth up to £8k-£10k if you need it. As such your vehicles would be no issue at all.
Hello I wonder if you could help, I have been advised to consider an IVA due to my financial situation, but I’m unsure as we have 2 cars, 1 for me and 1 for my wife. I work shift work and my wife uses her car for her work (care work, sales rep), my car is 11 year old and not worth anything really, it gets me to work and back, where as my wife’s car is fairly new and worth around £8000 but she needs a reliable car for her work – basically would this be classed as an asset and would we have to sell it?
Hi Keith
If you and your wife both need a car this should not be an issue. Given you are considering an IVA I would not be concerned about the value of your wife’s vehicle. It is not going to prevent you from starting the Arrangement and you would not have to sell it.
Remember you will need to provision for the cost of running both cars in your living expenses budget. I am surprised that the debt adviser you have spoken to did not put your mind at rest regarding this. It makes me question how thorough they have been and if they have covered all the other ins and outs of an IVA with you.
If you would like a second opinion or want to chat it through please do not hesitate to contact us here at Beat My Debt (0800 077 6180)
My partner has 2 cars on hp we want to give one back as can’t afford to run both but need to keep the more expensive one due to being a large family could he keep it and the other one be put onto the iva plan? We’re only 14months in had to change jobs from 28000pa to just 9000pa please help
Hi Donna
From what I understand it sounds as though you are currently in an IVA and have suffered a very large fall in your income. Given this I would expect you must be struggling to maintain your IVA payments.
Returning one of your cars would be a way to reduce your living expenses. Running just one car instead of two is likely to give you significant monthly savings. However it is not guaranteed that you will be able to include any shortfall on the car finance agreement in your IVA. If the new debt increases the total in your IVA by less than 10% then it might be possible. However if it would increase the total by more it will not be.
Before you do anything I recommend you chat this through with your IVA company and see what they say.