You do not need to be a home owner to carry out an individual voluntary arrangement (IVA). However the solution can be very useful if you own a property. Once the Arrangement is in place your creditors are not allowed to take any further legal action against you. Your home is thus protected from the threat of charging orders. However as a home owner you need to understand that if you can you will need to release equity. But what happens if your property is in negative equity?

You can start an IVA if your property is in negative equity

When you start an IVA you have to continue to paying your mortgage. It does not matter whether your property is in negative equity or not. If you do not pay your mortgage your property will be at risk of repossession.

The fact that you are in the Arrangement should actually make paying your mortgage easier. This is because your mortgage payments are treated as a priority debt. The cash you need to maintain them and any other secured loans is included in your living expenses budget.

BMD Tip: If you cannot afford to pay your mortgage you may have already decided to hand back the keys to your lender and allow the property to be repossessed. Any shortfall on the mortgage after this can then be included in an IVA as it is then an unsecured debt.

What if there is still negative equity at the end of the IVA?

As a home owner if you want to start an IVA you will have to agree to release equity from your property if you can. Your ability to do this will be assessed in the final year of the arrangement by getting a new valuation.

You have to agree to reviewing the value of your property in the final year even if it is in negative equity when the arrangement begins. When the value is reviewed if there is still no equity your IVA will end after you make your last monthly payment.

BMD Tip: If the value of the property has increased and there is new equity available (based on 85% of the value) you will be bound to release this if possible.

Is an IVA a sensible solution if your home is in negative equity?

If you are a home owner an IVA is a very good way of dealing with personal debts. This is primary because it gives you and your home legal protection from your creditors.

However, your mortgage debt is secured on your property and is therefore not included in the arrangement. This means you can use an IVA whether your home is in negative equity or not.

In fact being in negative equity can sometimes be an advantage. Given significant equity does not develop during the period you are in the arrangement there will be no requirement to release further equity and extend your mortgage at the end.