Generally speaking you are only eligible to carry out an Individual Voluntary Arrangement (IVA) if you are insolvent. Traditionally this has meant that if you are a home owner and the equity in your property is greater than the amount of your unsecured debt you could not use this debt solution.

However more recently creditors seem to be ignoring this rule and agreeing Arrangement where there is considerable equity in a property and even where this equity actually exceeds the total amount of unsecured debt.

This is very good news as it means that the solution is being made more widely available to home owners. We explain why it is happening and what affect it will ultimately have on your home.

Why will creditors accept an IVA if home equity exceeds debt?

If you start an IVA as a home owner your creditors will insist on equity release as a condition of the agreement. You will be required to try and re-mortgage your property in the fifth year of Arrangement and release as much of the equity as is possible up to the point where your unsecured debts can be paid in full.

However your creditors recognise that in the current economic climate it might be impossible for you to re-mortgage your property despite the equity in it. Therefore you may be unable to release any equity at all.

Where this is the case creditors seem happy to waive the equity release clause in lieu of an extension to the number of payments you make. This extension is normally an additional 12 monthly payments.

BMD Tip: You should never start an IVA relying on the fact that you will not be able to get a mortgage when the time comes and so avoid releasing equity by simply extend your payments. The mortgage market may well improve while you are in the Arrangement.

Do you want help to start an IVA? Give us a call on 0800 077 6180 or complete the form below to speak to one of our experts

Could you ever be forced to sell your home?

One creditor who will not normally be persuaded to waive the equity release clause in an IVA is HMRC. Generally speaking if you owe money to HMRC they will only accept the Arrangement if the repayment offer is clearly better than what they would expect to get if you were declared bankrupt.

If you are a home owner with equity in your property and you go bankrupt the Official Receiver could ultimately force the sale of your property to ensure the equity is released. As such if you owe money to HMRC and have considerable equity in your property HMRC will always require this to be released.

BMD Tip: HMRC will normally not be satisfied with allowing you to extend your Arrangement if you are unable to re-mortgage. Instead they will require you to sell your property (even under forced sale conditions) to release your equity if need be.

In these circumstances you may still ultimately be able to avoid selling by taking a secured loan against it to release the equity. However home owners who have considerable equity in their property and owe money to HMRC must take specialist advice.