An IVA is a professional agreement between you and your unsecured lenders to pay back some of your debts over a defined time frame – ordinarily five years, but it could be for a lesser period.
Secured creditors expect to obtain the complete contractual repayments on their secured loans to you over the lifetime of the IVA. Should you have a home loan, you’re going to be required to make the monthly home loan repayments to your home loan provider in full.
At the same time the unsecured lenders enjoy only a dividend on their unsecured loans to you. The size of the dividend can vary. It just depends on what you can afford to pay and whatever your unsecured creditors are prepared to consent to from you. Do not forget that over 75% of your unsecured lenders (calculated in £) will need to come to an agreement to embrace your IVA proposals before your IVA can be approved. In practice the dividend will fall within the range of 20p in the £ to 40p in the £, even though of course it may be much smaller and indeed much greater. On occasion unsecured lenders may receive 100p in the £ and possibly get statutory interest on top of that.
Therefore if you offer your proposals for an IVA, your unsecured lenders are not required to accept your offer. In cases where they consider that you can make higher contributions than you offer at the start, then they can propose alterations to your IVA that could have the result of increasing the size of your monthly contributions or indeed they can seek to increase the duration of the IVA for potentially six months or a little more.
When you have a mortgaged property, unsecured lenders will not ignore this point. They will consider the latest market valuation of the property and the amount you now owe to your mortgage supplier. You will be required to provide a current, genuine and fair market valuation of the property. You will also be required to obtain from your home loan company a present-day home loan redemption statement, displaying the entire cost of repaying your mortgage, including any early redemption penalty which could possibly be applicable. By means of these two pieces of information, your creditors can swiftly determine if there is any realisable equity in the property. If there is realisable equity therein, your unsecured lenders may very well, by means of adjustment to your proposals, require you to re-mortgage your property during the life of the IVA and bring in some or even all of any released equity into your IVA for their advantage.
A well constructed IVA proposal will already incorporate a provision for re-mortgaging the property and furnishing equity to lenders. However, it may well be that re-mortgaging is not an way to go for you quite simply since no mortgage company will take you on due to your substandard credit history. Additionally, you may find that to re-mortgage the property, you might have to pay premium home loan rates for the same reason.
Even if there is virtually no equity in the property, unsecured lenders may examine the amount of the monthly home loan repayments. If they are significant, creditors may propose a amendment that you dispose of the property and relocate to rental accommodation, thus making it possible for you to raise your monthly contributions to your IVA. As a yardstick, mortgage payments that go beyond 40% of net family income would normally be deemed to be disproportionate. Clearly if the cost of rental accommodation is considerably lower than your monthly mortgage payments, then it is not surprising that unsecured creditors would propose such a modification.
During recent years, property values have dipped dramatically, and many people find that their property is in adverse equity. This simply means that the cost of redemption of their mortgage is significantly larger than the existing market worth of the property. If required to offer for sale, the shortfall owing to the home loan provider now turns into a further unsecured liability and so ranks for dividend equally along with the other unsecured lenders, thus depressing the dividend in an IVA.
Don’t forget that your partner or spouse may already have an equitable interest in your property. In numerous cases that interest is 50% of the equity. Your family may also have legal rights of residence in the home which could make a enforced sale complicated for creditors, at the very minimum. In summary then, an IVA can indeed have an impact on your mortgage but the good news is that in most cases, debtors will probably not ‘lose’ their home in an IVA.
If you are entertaining the idea of going into into an IVA and are concerned that it might affect your mortgage, you should to begin with seek advice from an Insolvency Practitioner, commonly known as an IP, for advice. A reliable IP will look at all of your financial problems. You should incur no costs in obtaining this assistance. Your IP will probably go on to counsel you on all of the possibilities available to you such as entering into an Individual Voluntary Arrangement (IVA). That is not the only choice. You might contemplate entering into a Debt Management Plan (DMP) or even petitioning for your own Bankruptcy (BCY). There may be other options out there as well. You can select the most beneficial selection for yourself in the light of the assistance offered by the IP.