If you’ve had to borrow money from a family member or friend then this will normally be on an ‘unsecured’ basis i.e. it won’t be secured against your property – for example, via a Charging Order. Consequently, you should be able to incorporate it into an Individual Voluntary Arrangement (or ‘IVA’).
In this article we answer some of the most frequently asked questions about repaying debts to someone you’re likely to be close to and offer some guidance on how best to approach the situation.
Q. I borrowed £5k from my Mum but don’t want her to know I’m still in financial difficulty. What can I do?
Whilst it’s perfectly understandable that you might not want to concern members of your family with any repayment difficulties you might have there are serious considerations to bear in mind if you enter into an agreement with an IVA company. These are more specifically detailed as follows:
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If you decide to enter into an IVA, you can incorporate the debt (as long as it’s unsecured) and any monthly repayments will then be distributed to all your creditors – including your Mum – at an agreed monthly amount. However, this also means that your Mum might not get the full outstanding amount repaid to her as the IVA ends after a set period of time – even if the outstanding amount hasn’t been discharged in full. That said you could, of course, offer to keep repaying your Mum once the IVA has ended as a gesture of goodwill. Legally, however, she wouldn’t be able to pursue you for it.
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If you decided not to include the debt in the IVA (and, as such, not notify your Mum of the arrangement) then you’d need to ensure that you had enough money available each month to keep repaying her. This might well prove difficult as your chosen advisor will have to budget accordingly; meaning that you’ll only be left with a certain amount ‘spare’ each month – and that may well render any repayments impossible.
Q. My friend gave me £8k to pay off my debts and I’d like to keep this out of the IVA as I offered to repay it at £250.00 a month. Are there are any implications if I do this?
As stated above, your advisor will most likely recommend that the debt be included within the IVA. This is due to the fact that any failure to pay your set monthly amount could result in the IVA failing. If this happens then your other creditors will remain at liberty to make you bankrupt.
Q. If I go into an IVA will I have to prove that I owe money to my friends or family?
Absolutely. In order to be included in an IVA then you should be able to prove the amount owed – ideally through a loan (or similar) agreement which has been signed by all parties.
Q. Can I still repay my friends and family once the IVA has ended?
Yes. Once the IVA has ended then you’re no longer considered to be insolvent and any future payments would be classed as ‘preferential’. In fact, there’s nothing to stop you paying more back to any of your creditors included within the IVA.