IVA and Council Tax Arrears: How They Work

Can council tax arrears be included in an IVA?

Yes, council tax arrears that you owe when the IVA starts can normally be included, and the council becomes one of your creditorsHow to Deal with Creditors: Communication and NegotiationPractical advice on communicating with creditors, negotiating affordable repayments, and understanding your rights when dealing with the companies you owe.Read more → with a vote. Once the arrangement is approved with the support of creditors holding 75% of the debts, it binds all creditors, as GOV.UK explains, and they cannot take action against you over the included debts. That can include stopping bailiffs and further enforcement for those arrears.

Council tax is not like a credit cardHow Credit Cards Work in the UKHow UK credit cards work: interest, APR, minimum payments, interest-free periods, fees, Section 75 protection and how to use a card without getting into debt.Read more →, however. A council has legal enforcement powers and often treats the debt as a high priority. Councils vote on IVA proposals like other creditors, but some are reluctant to accept a reduced return. A practitioner should know how councils respond and tell you honestly if there is a risk.

Your current council tax must still be paid

An IVA deals with debts that exist when it starts. Your council tax for the current and future years is a new liability, and you must pay it as it falls due for as long as you live in the property. If you fall behind with current council tax during the IVA, the council can pursue it, and it could put the IVA at risk. Include your council tax in your monthly budget, and set up a direct debit. If you cannot afford it, ask about Council Tax Reduction and discounts. Our council tax arrears guide explains these in detail.

What if there is already a liability order?

If the council has obtained a liability order from the magistrates' court, it can use enforcement agents, ask your employer to deduct from your earnings or apply for other methods. If you enter an IVA and the arrears are included, enforcement of those arrears should stop. Make sure your practitioner knows the stage the debt has reached. If a bailiff has already visited or taken action, tell the practitioner immediately. See our guide to dealing with bailiffs for what they can and cannot do.

Priority and non-priority debts in your IVA

In a budget, priority debts like council tax, rent and energy come first because the consequences are most serious. In an IVA, the arrears are treated together with your other unsecured debts, so the council receives a share of your payments along with other creditors. This is why practitioners look at whether a different solution would protect you better, for instance if council tax is your largest debt. See priority and non-priority debts.

Alternatives for council tax debt

1. A payment arrangement with the council. Most councils will agree a plan if you contact them early.
2. Council Tax Reduction and discounts. Check you are not paying more than you should.
3. A Debt Relief Order. Council tax arrears can be included if you qualify. See Debt Relief Orders.
4. Breathing Space. A pause in enforcement for up to 60 days while you get advice. See Breathing Space.
5. A debt management plan. Councils are often more flexible when the payment plan comes from a recognised debt charity.

What to do now

Do not wait for a summons or a visit. Tell the council you are in difficulty, get a copy of your account and look at what enforcement has taken place. Then get free advice from StepChange, National Debtline or Citizens Advice. They can check if you have been billed correctly, whether you qualify for support and which solution fits your overall debts. Our guide to free debt advice in the UK explains how to reach them.

A worked example

Suppose you owe £1,800 of council tax arrears, £5,000 on credit cards and £3,500 on a loan, and the council has a liability order. A practitioner could include all three debts in an IVA. The council receives a share of your monthly payments alongside the other creditors, and enforcement of the arrears should stop once the IVA is approved. Your current year's council tax is a fresh bill: you pay it separately, in full, every month. If you miss that, the council can start recovery again on the new amount.

Questions to ask your adviser

Ask whether the council is likely to accept the proposal, what happens if it votes against it, and how a liability order is treated. Ask what you should do about the current year's bill, and whether you might qualify for Council Tax Reduction. Finally, ask whether a Debt Relief Order or a council payment arrangement would leave you better off, because for some people the cheapest answer is the simplest one.

Keeping evidence

Keep copies of every letter from the council, your liability order if you have one, payment receipts and anything you send to your practitioner. If the council continues to contact you after the IVA is approved, send them a copy of the approval notice and ask them to confirm in writing that the debt is included. Clear records make it far easier to correct mistakes quickly.