Will I have to sell my car if I enter an IVA?
For many reasons this is one of the more frequently asked questions of our IVA advisers and the answer is usually a resounding no, you won't have to sell your car if you enter an IVA.
It's understandable that people considering entering an IVA might have concerns about what may happen to their car, because the consequences of losing it would be unthinkable.
We all rely heavily on our cars in the modern world and, for many of us, they've become an essential requirement, not just for getting to and from work, but for the other aspects of our daily lives too, like getting to the shops, taking the children to school and visiting family.
So it's unthinkable that a person should be made to do without a car if it's a necessity.
Striking The Right Balance
It's usually down to the Insolvency Practitioner (IP) to determine how each car is assessed within any given case, which makes it difficult to give anything other than general information and guidance on how your circumstances will be treated by your IP.
But, in essence, there's a balance that needs to be struck between your practical needs and the monetary value of the vehicle required to deliver those needs.
This balance is important as, without it, it's likely creditors would take an aggressive stance.
What will your creditors think?
Again, generally speaking, creditors accept that ownership of a modest value car is an essential need for the modern family, and will accept modest allowances towards the reasonable running costs within the IVA budget.
But if the vehicle is of high value and owned outright, it's going to be vulnerable, and creditors may ask for it to be downsized.
What's exactly meant by 'high value' will depend on your circumstances and the situation surrounding the use of the car but, again, generally speaking a family car above £7,000 could be considered high value.
Exceptions will be made if the need can be justified. For example, where travelling to work involves a high mileage commute, it's possible creditors will allow a higher value car, to ensure reliability.
A fair and reasonable balance
There should always be a balance between what is fair and reasonable for you and what is fair and reasonable for your creditors.
For example, if someone has debts of £50,000, yet has a 1965 E Type Jaguar worth £25,000 sitting in their garage, then it would be reasonable for creditors request the sale of the car.
But it would be unreasonable for creditors to take the same stance on a family car with a value of £5,000, irrespective of the size of the debt.
HP agreements
If the vehicle in question is subject to a secured loan through a Hire Purchase (HP) agreement then, technically, the vehicle is still owned by the finance company.
Which usually means that the vehicle will be subject to being repossessed if the repayments stop.
When it comes to IVAs, this gives rise to 2 very different scenarios.
- Terminate payments to the HP company
If payments to the HP agreement can't be maintained, or if there's no advantage in maintaining the payments, then payments can be stopped and the vehicle repossessed. The vehicle will be sold by the finance company, with any shortfall between the car's sale price and the outstanding finance being added to the IVA debts.
The money previously being spent on the monthly payments will then be freed up for the IVA budget. This can be extremely useful if the cost of the hire purchase payments was impacting on the ability to afford the IVA contributions. - Maintain payments to the HP company
Creditors will usually allow HP payments to continue as a priority expense within the IVA budget until the finance agreement completes, so long as the payments are not above £250 per month.
This is always under the strict understanding that when the finance agreement finishes, the IVA contributions are increase accordingly, for the remaining duration of the IVA.
PCP agreements
If your are buying a vehicle using a Private Contract Purchase (PCP) agreement then, similarly to above, the vehicle still belongs to the finance company.
So the same choices are available:
- Terminate payments to the PCP company
If payments to the PCP agreement can't be maintained, or if there's no advantage in maintaining the payments, then payments can be stopped and the vehicle repossessed. The vehicle will be sold by the finance company, with any shortfall between the car's sale price and the outstanding finance being added to the IVA debts.
The money previously being spent on the monthly payments will then be freed up for the IVA budget. This can be extremely useful if the cost of the hire purchase payments was impacting on the ability to afford the IVA contributions. - Maintain payments to the PCP company
Creditors will usually allow PCP payments to continue as a priority expense within the IVA budget until the finance agreement completes, so long as the payments are not above £250 per month.
Normally the PCP agreement will allow the option to either return the vehicle after the agreed contract term, or purchase the vehicle in full by paying the balloon payment. most Insolvency Practitioners find it acceptable to finance the balloon payment at the same monthly payment as the previous PCP payments, but confirmation on this point should be sought before committing to an IVA. If it is acceptable, then there would be no increase to the IVA contributions.
Summary
If your vehicle falls into any of these categories it should be safe in an IVA.
- If the vehicle is still subject to a secured loan.
- If the vehicle is still subject to a PCP agreement.
- If the vehicle's running costs are not too high, or unreasonable.
- If the vehicle is essential for transport to work, or as a work vehicle.
- If the vehicle is essential for the day to day living.
- If the vehicle is valued at less than £7,000.
- If the vehicle is not a luxury item.
It's clear that every case must be considered on its own merits.
If you are still unsure how your vehicle would be affected by an IVA and would like further information then please call 0800 088 7502.
Or simply complete this form and one of our advisers will contact you at your preferred time.
