I Live At Home. How Will My IVA Affect My Parents?

If you’re struggling with debt, could your parents be made to pay? And if you’re a parent with an IVA, how might that affect any adult children living with you?

More than a quarter of all 20-34 year olds now live with parents. The figure of around 3.4 million has risen by 1 million in 20 years. And government figures show that 25-34 year olds are one of the age groups most likely to face insolvency (behind only 34-44 year olds). The natural conclusion from these two sets of figures is that it has never been more common to have an Individual Voluntary Arrangement (IVA) whilst living with your parents.

So if you’re living with parents, how does your IVA affect them? And if they are the ones with IVAs, what are the chances you could be affected?

Can I apply for an IVA whilst living with parents?

Yes. Where you live may be factor in how much you can afford to pay towards your IVA – but it has no effect on whether you can apply for one.

Will living at the same address as my parents affect all our credit ratings?

No. You might have heard that your address can be a factor when setting credit ratings, but this simply isn’t true. As Experian, one the UK’s largest credit scoring companies says, “Credit checks are done on people, not addresses.”

Addresses may be used in other ways – to confirm your identity, for example – but your address isn’t a factor in yours or your parents’ credit scores.

Will my parents’ credit ratings be damaged by my debt?

Not usually. The general rule is that you and no one else is responsible for your debt. So if you have built up credit card, catalogue or other unsecured debts neither your parents nor anyone else would be expected to pay them off for you.

The exception to this would be where your parents are guarantors for a loan. Being a guarantor means that they agree to cover your debts if you fail to pay them. If both of you are unable to pay, both of your credit ratings will be affected.

Can I pay my parents rent if I have an IVA?

Yes. Your IVA will be set up by a professional insolvency practitioner (IP). It is the IP’s role to ensure you can repay a proportion of the money owed to creditors, but they will make allowances for certain expenses and rent is one of those.

The more rent you pay, the lower your surplus income will be. This will lower your monthly IVA repayments so IPs will be on the lookout for rents that seem unreasonable. If your parents are charging you high rent, the IP is likely to ask why.

Could my parents help pay my IVA?

Yes. Even though they are under no legal obligation to pay your debts, they may wish to help. Paying a lump sum towards your IVA could help reduce your monthly IVA payments. It may even help your IP approve your IVA where they might otherwise have refused it.

If your parents are able to pay a significant amount towards your debts, talk to them before you take out an IVA. That’s because the charges for an IVA can be high – often around £5,000 – and will be added to your debt once your IVA is agreed. If your parents agree to pay a proportion of your debt they would probably prefer the money to actually go towards reducing your debt rather than simply paying insolvency practitioner fees.

Will an IVA affect my son or daughter?

So far, we’ve only explored what happens if the debt is the child’s. But what happens if one or more parents have an IVA?

As we explored recently, debt amongst the over-65s has risen faster than any other age group. It may never have been more likely that children living with parents will have an IVA, but it’s also true that parents aged 65+ are more likely to have IVAs than ever before.

All the above points still apply, however:

• You are not generally responsible for your parents’ debt, unless you have agreed to take credit jointly with them or are acting as a guarantor
• The fact you live at the same address will have no impact on your credit rating
• You are not required to pay anything towards their IVA, although there’s nothing to stop you helping out if you wish (and are able)

Will a Scottish trust deed affect my parents?

In Scotland, you can’t apply for an IVA, but you can apply for a Scottish trust deed (also known as a protected trust deed). It operates in much the same way although there are numerous differences between the two.

The same principles apply, however, so the only person likely to be affected by your trust deed is you.

To find the best route out of debt for you, please contact us.