What happens to my car HP if I do an IVA?

If you have a car on hire purchase, this will have significant implications if you wish to carry out an IVA. We investigate these and whether you will be able to keep your car.

A car hire purchase (HP) agreement or a car lease agreement is a secured debt. This means that if you stop making the payments on this type of loan, the car will be taken away from you.

For this reason a hire purchase or similar finance agreement cannot be treated in the same way as a normal unsecured creditor in a debt management solution such as an individual voluntary arrangement (IVA).

Is the loan HP?

The first thing you need to do is establish whether your car finance is truly an HP agreement or simply a personal loan.

If the agreement is a personal loan, it is not secured against your vehicle. Where this is the case, the loan must be included as a creditor in your IVA in the same way as any other loan or credit card.

It is not always easy to tell by checking your agreement whether the loan is secured against your car or not. If you are not sure, you should contact the loan company and ask.

Are the HP payments reasonable?

Given that you have established that your car finance is a secured HP or lease agreement, you should be allowed to continue making the payments once your IVA starts.

However, the explanation for you keeping the car and the cost of doing so must be reasonable.

If you need the car to get to work or family life without it would be difficult, then you should be able to keep it. However, if it is purely a luxury which you only use at weekends, you may be asked to give up the car before your IVA can be agreed.

In the same way, even if you do need the car, the cost of paying for it must be reasonable in the context of your financial situation.

If you are proposing to pay £300 per month into your IVA, but your car HP payments are £500 a month because you are driving a very expensive car, your creditors may find this unreasonable and not accept an IVA until you get something cheaper.

Funding your IVA

Given that your IVA allows you to maintain your car HP payments, you should continue to pay these normally in the same way as your mortgage and other monthly living expenses.

However, you must remember that once your HP agreement comes to an end, you will be expected to increase the payments you are making into your IVA by the amount you were paying into your HP. You will not simply be allowed to buy a new car.

The only exception to this is if you have finance agreement which requires you to pay a lump sum at the end to keep the car. Again, if this lump sum is not paid, the car will have to be handed back.

In these circumstances, you should be able to use the money you were paying to finance this lump sum payment.

If your car is on HP or any other finance agreement, you need to understand exactly how this will be affected before agreeing to start an IVA.

Generally speaking, you will be allowed to keep the car and maintain the payments. However, there are factors which could prevent this. In addition, you must make sure you fully understand what your obligations will be once the HP agreement comes to an end.

You must ensure that you discuss all of these factors with a debt advisor and your IP before starting an IVA.

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