Summary: this article reviews the implications an IVA may have on a hire purchase (HP) agreement.
Individual Voluntary Agreements (IVAs) are a popular choice for those struggling with more than about £12,000 of unsecured debt, and are insolvent. They are often the preferred alternative to bankruptcy, especially for homeowners, as there is less likelihood of having to sell the family home. After 5 years of affordable monthly repayments, any outstanding debt is cleared.
IVAs and HP agreements.
If it is for something that is necessary for work (which is clearly essential to be able to afford the IVA repayments), the cost of the monthly HP payments may be considered an essential expenditure, therefore allowing the individual to keep their car (provided it is not of excessive value).
Will the HP company allow me to continue with the agreement if I enter an IVA?
While the cost of the HP may be allowed to continue under the IVA, whether the HP Company will allow the agreement to continue is a different matter. Technically speaking, an HP agreement is a form of credit, and when an individual's enters an IVA, it is possible for the lending company see the IVA as a breach, terminate the agreement and reclaim the car. It is worth contacting the company to discuss what action if any they may take.
Other considerations of HP agreements and IVAs
Another important consideration relating to HP and IVA’s is if there is a payment expected at the end of the HP term. It is common in the case of car HP that after a set period, the individual may pay a lump sum to keep the car, or return it as deposit for a new HP agreement. As an IVA will affect credit ratings, it is unlikely that the individual will be agreed a new HP, even if the original agreement was allowed to continue. Therefore, how will the lump sum be paid? If the individual has that sort of disposable income, the creditors will have expected it to be included in the IVA agreement.
It is possible that an HP company will allow the agreement to continue if the individual enters an IVA. However, if they do, it is important to consider the impact it could have at the end of the agreement. The assumption in the IVA would be that once car payments have stopped, that money becomes available to creditors in the IVA. It would be wise to seek advice from the Insolvency Practitioner dealing with the IVA, the HP Company and also look at alternative options, such as borrowing a car from family or friends for the duration of the IVA.