How will my house be affected if I do an IVA?
Before you apply for an Individual Voluntary Arrangement (IVA) you need to be aware of how your home will be affected. If you are renting then the agreement will have little or no affect. However there are significant implications for home owners.
If you own your home an advantage of starting the Arrangement is that it protects your property from further legal action by your creditors such as an application for a Charging Order.
However it is very important to understand that if there is equity in the property in the final year of the agreement you must agree to try and release some of your share of this for the benefit of your creditors.
Will I have to release equity from my home during my IVA?
The rules surrounding the release of equity from your property if you are a home owner are laid out clearly by the IVA Protocol which was introduced in 2008 and most recently revised in January 2014.
If the terms and conditions of your Arrangement are Protocol compliant (and most since 2008 will be) then these rules make clear if and when equity must be released and what happens if equity exists but cannot be released for some reason.
Your property is normally valued on or around month 54 of your arrangement. On the basis of 85% of the value of the property at that time if your share of any equity is £5000 or more then you will need to attempt to release as much of this as you can.
If your share of the equity is less than £5000 you are not obliged to try and release any of this and the Arrangement will end as normal after your last standard payment has been made.
BMD Tip: A key principle of the equity release rules is that only 85% of the value of your property is taken into account for the purposes of equity release. In other words the first 15% of the value is discounted in any calculation regarding equity. As such if your property is worth £200,000 the calculation of equity is based on this value less 15% which is £170,000
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What if it is not possible to release equity during my IVA?
If your share of the equity in your property based on the calculation as explained above is £5000 or more you will need to try and release as much of this as you can either by re-mortgaging (or getting a secured loan if your IVA started after January 2014).
If either of these options are open to you there are strict limitations regarding how much you will have to extend your secured borrowing by. Your secured borrowing payments cannot increase by more than 50% of your current monthly IVA payment and the payments cannot extend beyond your retirement age or the length or your current mortgage term.
If you are unable to re-mortgage because you are unable to find a mortgage company who is willing to lend to you and no secured loan is available then this obligation ends. Instead you will have to extend your IVA payments by up to 12 months.
Do I have to wait to release equity until the end of my IVA?
There is no reason why you should wait until the end of your IVA to release equity. If you are able to release a lump sum immediately you can propose a full and final settlement to your creditors straight away.
If your circumstances change while you are in the middle of the arrangement making it possible for you to re-mortgage early then you can do so and settle at that point.
This option is used by many people so that their Arrangement finishes as soon as possible and they can move on with their lives debt free.
What will happen to my house if I do an IVA?
An Individual Voluntary Arrangement (IVA) will protect your property from your creditors.
Will you have to release any equity from your property?
What happens to any money you are able to release?
Can I start an IVA if my property is in negative equity?
If you have negative equity in your property you are certainly eligible for an IVA. However in this case it is less likely that you will have to release equity as part of the agreement.
If by the end of the Arrangement your property is still in negative equity or your share of the equity is less than £5000 no further consideration will be taken of your property and the agreement will end after you have made your 60th payment.
BMD Tip: You must not rely on the fact that your house will remain in negative equity during the course of your IVA. If house prices rise over the 5 years this might mean that equity appears in your property which you will then have to try and release.
What happens if my home is jointly owned and I start an IVA?
If you jointly own your home then only your share of any equity can be affected by your IVA. The other joint owner can never be forced to release any of their part of the equity.
Your Creditors and the Insolvency Practitioner will at no point have any legal right over the other owner’s share in the home. However the joint owner can chose to release some of this if they wish to allow you to offer an early lump sum settlement of the Arrangement.
What happens if I start an IVA while I am renting my home?
If you are renting your home one of the advantages of an IVA is that your landlord will not be informed of your situation. Therefore as long as you continue to pay your rent on time there is no risk to your rented property.
Your rent will be included in your living expenses budget so you know that you will always have sufficient cash to pay your rent on time each month.
If you have any rent arrears from your current property you should not normally try to include these in the Arrangement. However you will be able to include a budget in your living expenses to ensure that these are repaid at a sensible rate.
BMD Tip: If you have rent arrears from a property you are no longer living in these can be included in the Arrangement as this should pose no risk to your current accommodation
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