If you are struggling to pay your debts and have a car on HP we investigate how you can protect your car from repossession and which debt management solution is most suitable for you.

Car hire purchase (HP) is a common way of buying a car on finance. If you have an HP agreement, this means that you pay for your car with monthly instalments but you do not actually own the vehicle until all the payments have been made.

Where you are unable to continue to pay your HP payments, the finance company ultimately has the right to take your car away from you.

For this reason, if you need to keep your vehicle, it is vital that you maintain your HP payments. If you are struggling with debts, you can protect your car by implementing a debt management solution.

Protect your car HP payments

One of the most common debt management solutions is called a debt management plan (DMP). Many thousands of people choose to enter into this type of solution each month.

If you decide that a debt management plan is right for you, you must include your car HP payments as part of your monthly living expenditure budget.

As long as the payments are reasonable and you have a good reason for needing the car, for example you need it to get to work or for family commitments, then your creditors should not have any problem agreeing that it is an acceptable expense.

Once your HP is finished, if you wish you can use the extra money made available to increase the payments to your creditors. However, you are under no obligation to do this.

Using an IVA

If you are considering an individual voluntary arrangement (IVA) you can include your monthly car HP payment as part of your living expenses budget.

In the same way as a debt management plan, this will again be acceptable to your creditors as long as the car you have and the payments you are making are reasonable in the context of your budget.

Of course it will not be reasonable to maintain the HP payments on an expensive BMW when a cheaper car would do and trying to propose this may cause your creditors to reject the IVA.

Once in an IVA and your HP payments come to an end, you must then increase your monthly IVA payment by the corresponding amount for the remainder of your IVA.

What happens in bankruptcy?

Bankruptcy is generally seen as a last resort for dealing with a debt problem. Normally speaking, if you declare bankruptcy you are not allowed to keep a car worth more than £1500.

If your car is on HP, you first need to remember that its value is calculated by taking the market value of the car and deducting the outstanding HP. Very often this will mean that the car is worth less than £1500 or even in negative equity.

Where this is the case and the car is needed, you will normally be able to keep it and continue paying the HP.

The HP company will be told that you are bankrupt and may have a clause in your contract reserving the right to repossess the car. However, repossession would be unusual as the finance company stands to lose everything as any resulting outstanding debt would be included in your bankruptcy.

Generally speaking, if you have a car on hire purchase, you can enter into debt management plan, individual voluntary arrangement or bankruptcy, maintain the monthly payments and keep your car.

In fact, going into a debt management solution is actually a very good way of protecting your car because you are able to guarantee that you will have enough money in your budget to maintain the monthly payments.

However, choosing the correct solution will depend on a number of factors and you should therefore consult with a debt management expert before making a final decision.

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