If you are insolvent and are considering offering proposals for an IVA to your creditors you need to consider the implications for your transport needs, particularly if you already have a car or other vehicle. The first question you must ask yourself is whether you need a car in the first instance. Creditors may ask this question and you should be prepared to answer it. Provided it is essential for the normal transport needs of your household or for getting to and from work, creditors usually have no objections to your retaining a car for these purposes. Of course, in certain circumstances, particularly where there is good reliable public transport available, you might consider getting rid of your car, provided your household transport needs can be adequately provided and you can achieve some savings in this way.
The value of the car
If you decide that you want to keep your car, creditors will look at its value and all of the costs of keeping it. If you own the car outright, creditors will consider whether it is excessively valuable. If it is valued at £5,000 or less, there is usually no problem in keeping it. If it is more valuable than that, say £10,000, creditors may insist that you sell it and acquire a less expensive car and that you contribute the difference to your IVA so as to increase the percentage of your debts that you are going to repay.
Car in a Hire Purchase agreement
If you do not own the car outright but acquired it under a HP agreement, creditors may allow you to continue paying for the car for the full term of the HP agreement and when that is completed, seek for you to increase your monthly contributions to your IVA by the amount of the now ceased monthly HP payment. For example, if you offer proposals for an IVA of five years duration, and your HP Agreement expires after three years, your creditors will expect to see enhanced monthly contributions to your IVA for the last two years. It is important therefore to verify how you financed the car i.e. whether by way of a HP agreement or via an unsecured loan. In the past, some people thought that they had a HP agreement whereas on closer examination it turned out to be an unsecured loan.
If your vehicle was acquired via a HP Agreement, it is a secured asset. Your IVA proposal must provide a realistic valuation of the vehicle in its current condition. The car might be in positive or negative equity, depending on its current value and the amount remaining to be paid on the HP agreement. You must state when the agreement was entered into and its duration. It must state what your monthly HP payments are. If there is a final balloon payment at the end of the term of the HP agreement, your proposal must provide full details, including how you propose to address the balloon payment, given that you will not have savings available to pay such a large lump sum as it falls due. A common treatment is to refinance the amount of the balloon payment and continue making monthly payments equivalent to the now ceased HP payments until the refinanced balloon payment is cleared.
Cost of keeping your vehicle
Your IVA proposal must also set out the projected running costs of the car, breaking down annual costs such as road tax and insurance into monthly amounts to be put aside. Allowance has to be made for the costs of your MOT, oil, fuel, parking, maintenance and servicing. All of these costs will appear on the monthly income and expenditure statement contained in your proposal.
Purpose of the vehicle
You must also state why you need a car. It may be that you need it to travel to and from work. You may need it for family transport purposes. It may even be necessary for your business e.g. if you were a self employed taxi driver or if you were in the business of providing courier services.
Changing your car in an IVA
However, it may be that you will need to change the car at the end of the HP agreement, due to its age or condition at that time. If for example, you were a self employed taxi driver, changing the vehicle might be absolutely necessary because of safety, condition, excessive running costs or other valid reason. Your IVA proposal should anticipate such a scenario and state so up front, allowing for the need to obtain a replacement vehicle, also on HP, during the term of your IVA. This is preferable to offering your creditors a variation to your IVA after two or three years and seeking their permission at that stage to change your vehicle.
In summary, keeping your car in an IVA is usually acceptable to creditors, provided there is reasonable justification and the costs of doing so are not excessive.