Can you keep your car on finance in an IVA?

What matters is who owns the car and whether you need it. A car on finance is treated differently from one you own outright, and handing a car back has its own rules under the Consumer Credit Act. This guide covers each situation, what the IVA Protocol 2025 says, what happens if you need a new car during an IVA, and what to do if you get car finance compensation.

What happens to hire purchase or PCP when you enter an IVA?

Under hire purchase and conditional sale agreements (many PCP deals are one of these, and your paperwork will say), you do not own the car until you have paid off the agreement. An IVA deals with your unsecured debts. It does not give you ownership of a car the finance company still owns.

That leaves two routes.

• Keep the car and keep paying. The finance agreement usually runs alongside the IVA, and the monthly payment is included as an expense in your budget.
• Hand the car back. Any shortfall you still owe after the car is sold becomes an unsecured debt, which can usually be included in the IVA.

Whether your creditors accept the first route depends on whether the car is needed (for work, school runs, caring, or because there is no practical public transport) and whether the cost is reasonable. Your budget is drawn up using the Standard Financial Statement, and creditors vote on the proposal. A modest car you need for work is less likely to be questioned than an expensive car with a high monthly payment, which creditors may challenge because every pound spent on it is a pound not going to your creditors.

Two things to check before your IVA starts:

1. Some finance agreements contain a clause that lets the lender end the agreement if you enter an IVA. National Debtline advises checking your agreement for this before you apply. Show it to your insolvency practitioner.
2. The Protocol asks the nominee to look ahead at events that may affect your payments, and it names hire purchase agreements specifically. If your agreement ends during the IVA, or a PCP balloon payment falls due, that needs planning in the proposal, not a surprise in year 3.

Can you keep a car you own outright?

Usually, if you need it. The standard terms exclude from the IVA any assets that would be excluded in bankruptcy under section 283(2) of the Insolvency Act 1986. That includes vehicles “necessary to the bankrupt for use personally by him in his employment, business or vocation”.

A useful comparison is bankruptcy, where gov.uk says you can usually keep items you need for work unless they are worth more than a reasonable replacement. So an ordinary car used to get to work is unlikely to be touched. A valuable car could be. Creditors might ask for it to be sold and replaced with a cheaper one, with the difference paid into the IVA.

Once your IVA starts, you must get your supervisor’s written consent before you sell, charge or otherwise dispose of any asset that is part of the arrangement.

What if you want to hand the car back?

If the finance costs more than your budget can support, handing the car back may make sense. How you do it affects how much you owe.

With a regulated hire purchase or conditional sale agreement (your paperwork will say which), you have a legal right to end it at any time before the final payment is due. This is called voluntary termination, under section 99 of the Consumer Credit Act 1974. Your liability is then limited: you pay the amount, if any, by which half of the total price exceeds what you have already paid and what was already due, unless the agreement asks for less.

Handing the car back in other ways, such as asking the lender to take it without using section 99, can leave you owing the full balance minus whatever the lender gets when it sells the car, which is often more. National Debtline explains both routes.

If you have paid a third or more of the total price and fall behind, the car becomes “protected goods”. The lender then needs a court order to take it back unless you agree to hand it over (section 90).

Talk to your insolvency practitioner before you do anything. The timing matters: a shortfall that exists when the IVA is proposed can be listed as a debt in it.

Can you get car finance during an IVA?

Possibly, but only with your supervisor’s agreement. The standard terms say you must not take credit of more than £500 without your supervisor’s prior written approval. Taking it without approval is a breach of your IVA.

Your supervisor will look at whether the new payment is affordable and whether you need the car. Lenders will also see the IVA on your credit file, so fewer will accept you and the interest rate is likely to be higher. See how an IVA affects your credit rating and credit checks during an IVA.

What happens to car finance compensation during an IVA?

It may belong to your IVA, so tell your supervisor before you spend it.

The FCA has set up a redress scheme for motor finance agreements taken out between 6 April 2007 and 1 November 2024 where customers were treated unfairly over commission. On 2 July 2026, parts of the scheme were suspended while the Upper Tribunal hears legal challenges. Lenders do not currently have to calculate or pay redress under the scheme. If the scheme is upheld, the FCA expects payments to begin in 2027 (see the FCA’s update on the scheme). You can complain directly to your lender at no cost, and you do not need a claims management company or law firm.

If you are in an IVA:

• The FCA says that for IVAs, “entitlement to redress can depend on the terms of the arrangement”. It asks people in an IVA to tell both the lender and their insolvency practitioner.
• Under the standard protocol terms, the assets you have when the IVA starts are included unless excluded, and anything worth more than £500 you receive during it can be claimed as an after-acquired asset. That claim is limited to what is needed to repay your creditors 100p in the pound plus the costs of the IVA. See pay rises, bonuses and windfalls.
• If you owe arrears on the same finance agreement, the lender may be able to set compensation off against those arrears. The FCA’s rules limit this to the agreement the redress relates to.

What people commonly get wrong

• “An IVA protects my car.” It protects you from action by creditors bound by the IVA over the debts in it. The finance company still owns a car on hire purchase or PCP, and you have to keep paying to keep it.
• “I can swap cars whenever I like.” Any new finance over £500 needs written approval first.
• “The PCP balloon will sort itself out.” It will not. Plan the end of the agreement with your insolvency practitioner.
• “Compensation is my money.” It may be an asset of your IVA. Ask first.

If a car is central to your situation, compare how each debt solution treats it. For example, a debt relief order ignores one vehicle worth less than £4,000. See IVA or debt relief order? and IVA or bankruptcy?.

What to do next

1. Find your finance agreement and check what type it is, how much you have paid, and whether it has a clause about insolvency.
2. Tell your insolvency practitioner about the car, what you use it for, and any balloon payment or end date during the likely IVA term.
3. If you are already in an IVA and need a different car, ask your supervisor before you apply for finance.
4. For free, impartial help with any of this, contact MoneyHelper, StepChange, Citizens Advice or National Debtline: see where to get free debt advice. More guides on day-to-day life are in life in an IVA.