What debts can go into an IVA
An IVA only has the power to deal with unsecured debts.
Unsecured debt is the phrase used to describe a credit agreement where the lender did not demand, nor receive, security over an asset or property, owned by the borrower, as part of the agreement.
Typical examples of unsecured debts are as follows.
- Bank Loans: Most common type of personal loan.
- Payday Loans: Loans advanced on the deposit of valid cheques to the agreed value.
- Bank Overdrafts: Typical cash advances to assist with monthly cash flow.
- Credit Cards: The full spectrum of credit cards fall into this category.
- Store Cards: Cards enabling purchases to be credited form one chain of shops.
- Catalogue Accounts: Buy now – pay later via mail order.
- Property Shortfalls: Previously secured debts which still exist after a property has been sold.
- Vehicle Shortfalls: Debts remaining after vehicle sale fails to cover the vehicle finance.
- Furniture Credit: Buy now – pay later furniture stores.
- Electrical Goods Credit: Laptops, computers or TV’s to name but a few.
- Personal Guarantees: Often associated with 3rd party debts, such as that given by a Director for a Limited Company debt or a that of a family member.
All of these types of credit agreements can be included in an IVA.
With regard to Personal Guarantees, it should be understood that the IVA will only be able to remove the legal liability of the personal guarantee itself. The IVA will not deal with the repayment of the debt or the legal obligation of the person or Limited Company to maintain repayments for themselves.
The original debtor will remain liable for the original debt and its repayments, whist the original agreement continues as scheduled.
The IVA will include the personal liability to the debt as a contingent creditor. This means that if, for whatever reason, the original agreement is defaulted upon, the creditor no longer has the assurance of being able to pursue the guarantor for repayment of the debt.
Further to the more common types of unsecured credit agreements listed above, there are some less common examples, all of which too, can be included in an IVA.
- Overpaid Benefits: Child Tax Credits paid in error being the most common.
- Unpaid Income Tax: Any outstanding income tax.
- Unpaid VAT Bills: Sole trader’s VAT liabilities can be included.
- Unpaid Utility Bills: From previous addresses.
- Unpaid Council Tax: Any outstanding council tax including the current financial year.
- Unpaid Mobile Phone Contracts: Where the phone is no longer being used.
If you have a debt which does not fall into any of the above categories, or if you are unsure as to whether a debt you owe can be included an your IVA, please call our helpline on 0800 856 8569 and one of the team will be happy to assist you.
What debts cannot go into an IVA
An IVA is unable to assist with debts related to:
- Court fines.
- CSA arrears.
- Debts arising from fraud.
- Secured debts.
As the name suggests, secured debts provide the lender with a level of ‘security’, usually over a property or an asset owned buy the borrower.
In the event that the secured debt falls into default, the lender retains the right to reclaim or ‘repossess’ the asset or property against which the security has been taken. It is for this basic reason that secured debts cannot be included in an IVA.
Here are the main examples of secured debts:
- Mortgages: The credit agreement through which the majority of people buy their home.
- Secured Loans: Often the primary method by which equity can be released from a property.
- Charging Orders: Unsecured loans which have been secured to a property through legal action.
- Hire Purchase Agreements: Most often used to purchase cars, boats and caravans.
- Log Book Loans: Often the primary method by which equity can be released from a vehicle.
Secured debts tend to be associated more with high value purchases and loans, and tend to be the product of choice to creditors who are being asked to take higher than average risks.
By the nature of the agreement, the security being given helps lenders to balance the risks of a potential default during the term of the agreement.
They are safe in the knowledge that the security they hold can be used to help recover the loan in the event of repayment problems.
It's for this reason that an IVA will treat any secured loans you may have, such as your mortgage or an HP agreement, as priority debts.
When you enter an IVA, you will be given specific allowance each month to ensure you remain able to afford you financial commitment to any secured loans you have.
For the sake of clarity, having a secured debt does not preclude you from entering into an IVA, it just means that the agreement will need to be maintained and treated as a priority, along with your other essential living costs.
Your financial obligations to your secured debts will be given priority status in your budget, which means your ‘unsecured’ debts can then dealt with by the IVA.
If you are unsure as to which type of debts you have and would like further clarification on the matter, then please call one of the team on 0800 856 8569.