Hire Purchase Debt

An HP agreement is still considered a debt – and you don’t actually own the goods until you’ve repaid the full amount to the credit provider.

Hire Purchase (HP) agreements aren’t the same as credit agreements like credit cards and personal loans.

With borrowed money – anything you buy with it you own – and your lenders can take action to get back the money if you don’t make your agreed payments.

If you’re struggling with multiple debts, an IVA may be the best solution to address these to retain the items you’re paying for on HP.

On the other hand, any goods bought on an HP agreement aren’t yours until you’ve repaid the total agreement – and the finance company can ask you to return the goods if you fall behind on your payments.

Consequences of missed HP payments

If you miss payments before you’ve paid a third of the total amount owed, the finance company can take back the item. They can do this only in a public place, so they may be able to repossess a car, but they cannot come into your home and take for example furniture, unless you give permission.

If you have paid more than one-third of the total amount you owe, the creditor must start court action to get the goods back, or to get you to pay. You will then receive a hearing date, when the court will decide whether you must return the item or accept any offer by you to make payment.

The court can also make a Suspended Order, which means that the finance company can get the goods back only if you miss future payments.

Some items purchased on HP can’t be returned nor repossessed by creditors for reasons of practicality – for example a fitted carpet.

Some items you may think are bought on HP are not; they are just financed by the seller and these debts are plain unsecured debts.

Other Options

• Time Order
  You can ask for a Time Order under which the court can reduce the payments to a level you can afford.
• Voluntary Termination
  If you want to avoid court action and cut your losses, you can end your contract and return the goods. You are fully entitled to terminate the agreement at any time. It does not matter if you’re in arrears or how much of the contract has been paid.
• Returning a vehicle
  The vehicle does not have to be in pristine condition when you return it. They cannot refuse the termination whatever the condition. All that is required by statute is that the goods were “reasonably well” looked after. The creditor is entitled to charge for any work needed to return the vehicle to a reasonable standard.

Bankruptcy & Hire Purchase debt

The finance company will usually cancel the agreement when you go bankrupt. You’ll have to hand the item back, but the debt will be included in your bankruptcy so there’ll be nothing more to pay.

Alternatively, you may be able to keep the items, in which case, (if you’re allowed to keep the goods) you’ll have to keep making the HP payments.

IVAs & Hire Purchase debt

You can include HP payments as a budgeted item in an IVA. This means these payments are taken into account before considering how much is left over to repay your unsecured debts.

If the HP payments are completed mid-IVA, you will be expected to make increased payments into the IVA now that your outgoings are lowered.

If the HP agreement is terminated and there is an outstanding amount to be paid; this is known as a shortfall. These debts are unsecured and can be included in an IVA just like any other unsecured debt.[show-iva-cta]