What debts can go into an IVA?
It's generally understood that an IVA can only deal with personal unsecured debts but, beyond that, identifying what that means and whether a particular debt can be included in an IVA can be confusing.
Hopefully, this information will help you to identify which debts you can include in your list of IVA creditors, and which you must keep out.
Unsecured Debts Can Be Included In An IVA
Generally speaking, there are two categories of personal debts. There are unsecured debts and secured debts and, as you now know, IVAs can only deal with the 'unsecured' category which are, by far, the most common.
Here's a list of the most frequently found unsecured debts:
- Personal bank loans:
Most loans fall into this category and can include consolidation loans as well as short to medium term loans. - Pay day loans:
Typically short term loans with relatively expensive interest rates, rather a new phenomenon in the UK. - Personal credit cards:
These include all standard credit cards, including stand alone agreements and those provided by your bank. - Personal overdrafts:
All bank or building society overdrafts are included in this category, irrespective of the overdraft level. - Store cards:
All independent store cards that provide credit, including those provided by 3rd party creditors. - Shopping catalogues:
All catalogues fall into the unsecured category, including clothing, footwear, toys and tool catalogues - Credit for electrical goods:
Any credit facilities for electrical goods, including buy now - pay later agreements can be included. - Furniture credit:
Any credit facilities for furniture goods, including buy now - pay later can be included in an IVA. - Shortfalls from a property sale:
Any shortfall created by the sale of a property which was in negative equity can be included in an IVA. - Shortfalls from vehicle finance:
Any shortfall created by the sale of a vehicle with negative equity in the finance agreement can be included.
Unsecured debts are not secured against an asset and, as a result, the creditors' legal rights are restricted when compared to the rights of creditor with a secured debt.
An unsecured creditor doesn't have the right to repossess any property in the event of a breach to terms of the loan agreement.
For example:
After several monthly payments have been missed to an unsecured car loan, the creditor cannot repossess the car, even though the terms of the loan agreement used to buy the car have been breached.
Other debts that can go in an IVA
As well as the list above, there are several other types of debts that can be included in an IVA and they are as follows:
- Unpaid Inland Revenue bills:
Of particular interest to the self employed, all unpaid Inland Revenue bills can be included in an IVA - Unpaid HMRC VAT bills:
Any outstanding VAT will be included into an IVA, including the VAT due on the current VAT quarter. - Unpaid HMRC PAYE bills:
Any outstanding PAYE debts can be included without any adverse reaction being shown towards the employee. - Overpaid benefits:
Child Tax Credit, Family Tax Credits, Council Tax credits and Housing benefit overpayments can all be included. - Unpaid Council Tax bills:
All unpaid Council Tax bills except those for the current year can be included in an IVA. - Unpaid utility bills:
All utility bills from previous addresses that have yet to be settled can also be included in an IVA. - Mobile telephone bills:
Any unpaid mobile telephone or sim card contracts for mobile telephones no longer in use can be included. - Personal Guarantees:
Any personal guarantee given as guarantee to a 3rd party, such as that given by a Limited Company director.
All of the different types of unsecured personal debts and liabilities listed above can be included in an IVA.
Unsecured creditors' legal rights
Although unsecured creditors can't repossess property, they do still have the option of taking legal action against the debtor in pursuit of the debt.
Therefore it's important to monitor the actions of a creditor who's chasing an unsecured debt through the courts.
If no payment agreement is reached, the creditor could if they so wished, use the full force of the Consumer Credit Act against the debtor and petition for bankruptcy.
Legal protection through an IVA
If the threat of legal action is imminent, the IVA Nominee can apply for an Interim Order to stop any legal action in its tracks until the outcome of the Creditors' Meeting has been determined.
As soon as the IVA's been accepted by the necessary majority, under the basic terms and conditions of an IVA, the debtor is given permanent legal protection.
All creditors are legally bound by the IVA's terms and immediately forfeit their right to take legal action for the recovery of their outstanding debt.
Secured Debts Cannot Be Included
Unfortunately, secured debts can't be included in an IVA. Fortunately, however, they are given special priority within your IVA budget, to ensure you still have the means to maintain your agreement.
Here's a list of the most common found secured debts:
What is a secured debt?
The most common types of debt falling into the secured category are:
- Mortgages:
This type of debt is secured against a house or property. - Secured Loans:
This type of debt is secured against a house or property and is usually in addition to a mortgage. - Second Charge
These are debts secured against a property, often as a result of a Charging Order. - Hire Purchase Agreements:
This type of debt is usually secured against the asset purchased with the loan, for instance a vehicle, caravan or motorbike.
With secured debts, the creditors have a guarantee in place.
This guarantee gives them the legal right to take possession of the asset used as security, in the event of a breach of the agreement, an action known as 'repossession'.
For example:
After several monthly payments have been missed to an HP agreement used to buy a car, the finance company could repossess the car due to the breach of the terms of agreement.
Limited Company Debts
An IVA can only deal with personal debts of an individual or individuals, and not those of a Limited Company. The directors of a Limited Company would need to consider a Company Voluntary Arrangement (CVA) to deal with its debts.
Do You Qualify For An IVA?
Take this link to find out if you qualify for an IVA by using the most sophisticated debt calculator on the web.
The calculator uses a complex set of algorithms to establish what it believes would be your most suitable debt solution, based on your personal circumstances.
Not only that, but it also produces a detailed report explaining why it arrived at that conclusion, something that is quite unique to IVA.info.
Get professional advice
If you're unsure whether the debts you have are able to be included in an IVA, just give us a call on 0800 088 7502.
One of our advisers will discuss your circumstances with you and help you determine whether an IVA is a viable option for you.
Alternatively, complete this form and one of our advisers will contact you at your preferred time.
