Outstanding payments on an HP (Hire Purchase) agreement is considered a debt. You don’t own the goods until you’ve repaid the full amount to the credit provider.
HP is a type of borrowing. It is different from other types of borrowing because you don’t own the goods until you have paid in full.
Under these agreements, you hire the goods and pay agreed instalments. While you are still making payments, you can not sell without the lender’s permission as you don’t own them.
You can return the goods (subject to practicality) if you fall behind on your payments and in by doing so, clear the debt.
I’ve missed some HP payments.
Will the item be repossessed?
It depends on how much you’ve paid.
If you have paid less than one-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 items without permission.
If you have paid more than one-third of the agreement, the creditor must start court action to get the goods back, or to get you to pay. The court will decide whether you must return the item or will consider an offer by you to make payment.
The court can 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 fitting kitchen.
Some items you may think are bought on HP are not; finance is arranged by the seller and these debts are plain unsecured debts and so the retailer cannot seek to repossess.
- Returning goods*
- 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.
*If the items is a vehicle, it does not have to be in showroom 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.
Conditional sale agreements
A conditional sale is similar to hire purchase. These differ as they normally include the explicit condition they can take back the goods if you fall behind with payments at any time up until the final payment is made, without a court order.
Bankruptcy & Hire Purchase debt
The finance company may cancel the agreement when you go bankrupt. You must hand the item back and remaining payments will be included in your bankruptcy as debt so there’ll be nothing more to pay. If the agreement is not cancelled, you may able to keep the items and continue to make the HP payments.
IVAs & Hire Purchase debt
Any HP agreements when entering an IVA must be appropriate and reasonable. You cannot expect to be paying excessively for luxury items. HP payments for domestic needs car up to a value of £9,000 is normally acceptable to creditors.
HP payments are considered to be a priority debt and are expenditure items in the IVA.
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 as a creditor.
In the context of an IVA, debts are referred to as either an expenditure item or included as a creditor.
An expenditure item
When entering into an IVA, a calculation is made to determine your available disposable income. This establishes how to much you to have to pay towards your non-priority debts once you've paid for your living expenses, important obligations and priority debts. Your available disposable income is how much you pay into the IVA.
So, priority debts and other important obligations are said to be excluded from an IVA but are an expenditure item used to determine the IVA payments.
Included as a creditor
A creditor in an IVA represents a negotiable debt. It is these debts which are said to be included as a creditor in the IVA and cleared once the IVA completes.