HP and Bankruptcy
Let’s take Bankruptcy first. If you have a car on HP, the decision as to whether you will lose it in Bankruptcy will be made by the Official Receiver and the finance company once the bankruptcy order has been made.
Some finance companies will demand the return of the car and others allow you to keep it, provided you keep up the payments and of course the Official Receiver must agree as to the amount of the payments. If you are self employed as a taxi driver for example and use the car in the course of your work your chances of retaining it are enhanced enormously since you can argue that it is a tool of the ‘trade’
HP and an IVA
If you enter into an IVA, you will generally be allowed to retain the car provided it is necessary for work or family transport reasons, the value is not excessive and the monthly HP payment is not excessive. Again, some finance companies will demand the return of the car and others allow you to keep it, provided you keep up the payments. Read the small print of your HP agreement to clarify the policy of the finance company in the event of your insolvency. You may also have the right to retain the vehicle, depending on how much of the term of the contract has expired and how much you have already paid to the finance company. If you are forced to return the car, any shortfall arising becomes an unsecured debt in your arrangement.
Your IVA proposal must provide a realistic valuation. It must state when the HP agreement was entered into and the duration of the agreement. It must state what the monthly HP payments are. If there is a final balloon payment your proposal must provide full details and show how this is going to be addressed when it falls due.
Your proposal will 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. Apart from the monthly HP payment, your car will also incur running and maintenance costs such as petrol or diesel, insurance, Road Tax and maintenance costs. These are all normal expenditure items on your Income and Expenditure Statement.
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. Creditors will expect all of this information to be provided in your IVA proposal. Not only that but creditors will expect your proposal to offer increased monthly contributions to your IVA, once your HP Agreement expires. 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.
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 reasons. 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 then to change your vehicle.
In a nutshell, full disclosure of your car HP and all associated circumstances is not just desirable, it is essential for the acceptance, maintenance and successful completion of your IVA.