For many reasons this is one of the more frequently asked questions of Individual Voluntary Arrangement advisers, and the answer is usually no.
It is, however, understandable that people considering an Individual Voluntary Arrangement would have worries about what may happen to their car, because of the consequences of having to live without it.
In the early 21st century we all rely very heavily on cars for transport to and from work, and for social and domestic use, and just because a person is in debt does not mean that their dependence on their vehicle is diminished.
The rules about cars in an Individual Voluntary Arrangement are not actually recorded anywhere, and tend to be interpreted by the Insolvency Practitioner and the creditors on a “case to case” basis. Therefore, it is difficult to give any hard and fast guide as to what is, or is not acceptable in an Individual Voluntary Arrangement.
In the main though, creditors will accept that ownership of a modest car is acceptable, and will give modest allowances within the debtors budget to enable reasonable running costs to be available within the Individual Voluntary Arrangement.
It is more likely for creditors to expect the sale of a car in an Individual Voluntary Arrangement if it is of high value and owned outright.
That ‘high value‘ will depend on your circumstances and the situation surrounding the use of the car, but anything over £5,000 will be brought into question.
However, if it can be demonstrated that its owner needs the car for work, and that work entails a high mileage, then it is possible that a higher value car, i.e. a more reliable one, may be acceptable in the Individual Voluntary Arrangement.
There will always need to be a balance between what is fair and reasonable for the debtor to endure, and what is fair and reasonable for the creditors to recoup. For example, if someone owes £65,000 to creditors, and their pride and joy is a 1965 E Type Jaguar worth £40,000, then creditors are highly likely to insist on the sale of the car for the Individual Voluntary Arrangement to be accepted.
Vehicles Under a Hire Purchase Agreement.
If the car is subject to a secured loan through a hire purchase agreement, then technically the car is still actually owned by the finance company.
This usually means that if repayments for the car stop, the car will be repossessed.
There are two actions available in this situation, but which action is chosen will depend on the circumstances of each individual case.
1) Stop making payments to the hire purchase company.
If this should happen, then the shortfall between the cars value and the amount still outstanding on the finance, will be added to the Individual Voluntary Arrangement, and the value of the monthly payments will be added to the debtors budget.
2) Keep making repayments to the hire purchase company
Creditors will usually allow for payments to continue until the end of the finance agreement, so long as the payments are not excessive, i.e. more than £300 p/m.
This is always under the strict understanding that when the payments to the hire purchase company finish, the Individual Voluntary Arrangement contributions will increase accordingly, until the end of the Individual Voluntary Arrangement.
So , to summarise, setting out the hard and fast rules for the treatment of a car in an Individual Voluntary Arrangement is problematic, but if the vehicle fits the profile below it is unlikely to be pursued as an asset in an Individual Voluntary Arrangement and attract a forced sale.
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If the vehicle is still subject to a secured loan.
If the vehicle 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 valued at less than £5,000.
If the vehicle is not a luxury item.
If the vehicle does not have excessive equity value.
It is clear that every case must be considered on its own merits.
If you are still unsure how your vehicle would be affected in an Individual Voluntary Arrangement, and would like further information from our in-house Insolvency Practitioner, then please call 0800 088 7503 and speak to one of our specialist IVA advisers
Or you could visit My IVA Adviser to download any of our free Individual Voluntary Arrangement guides that have been designed to help answer your questions about all the different aspects of Individual Voluntary Arrangements.