After your home is repossessed, you may end up with a mortgage shortfall. You and any other joint account holder remain personally liable for this debt owed to the lender.
Included in this article:
- Is it possible to pay off a mortgage shortfall with a debt management plan?
- Can an IVA help with debt after your property is repossessed?
- Could you go bankrupt to write off a mortgage shortfall?
Want help if your home has been repossessed? Give us a call (0800 077 6180) or complete the form below to speak to one of our experts
Is it possible to pay off a mortgage shortfall with a debt management plan?
Generally speaking you can use a debt management plan (DMP) to repay any mortgage shortfall after your property has been repossessed. Basically this involves making payments towards the debt (based on what you can afford) until it is repaid in full.
Most mortgage lenders will agree to this as ultimately that will be getting back the money they are owed.
The major issue for you however, is the time it will take to pay off your debt. The Plan could last many years depending on the amount you owe and whether you can increase the payments to pay it off sooner.
If you have access to a cash lump sum, you could reduce the time it takes to repay the debt by offering a full and final settlement. You would also need to show that you can’t afford ongoing monthly repayments.
Can an IVA help with outstanding debt after your property is repossessed?
An IVA is a useful option for dealing with mortgage shortfall debt from a repossession. Depending on the amount owed and your wider circumstances, this might be a better solution than a debt management plan.
One of the major advantages is that the Arrangement will last a maximum of 5-6 years. After this, any debt left unpaid is written off by the lender. Clearly this is a much better than facing a DMP which has the potential to last much longer.
But would the mortgage company agree to this plan? They are not going to get all of their money they are owed back, so why would they?
Creditors will accept an IVA is because they compare the return they are likely to get with what they would lose if you go bankrupt. Normally if you go bankrupt, they will get little or nothing. As such, accepting your IVA proposal (even if they will only get back a small percentage of what they are owed), is still better than zero.
Before starting an IVA, remember that the agreed monthly payments can increase if your income goes up. In addition, if you receive a windfall, it has to be paid into the Arrangement on top of the normal payments.
Could you go bankrupt to write off a mortgage shortfall?
Going bankrupt is often seen as something to avoid at all costs. However, this is because if you are a home owner, you could lose your property. But if your home has already been repossessed, you no longer need to worry.
In these circumstances, bankruptcy can actually offer some massive advantages. Not least, all of the mortgage shortfall you owe together with any other unsecured debts is written off.
In addition, you don’t have to make any further payments towards the debt at all unless you can afford to. So if you have no surplus income, you pay nothing at all and your bankruptcy lasts just 1 year.
Where you can afford to make a monthly payment, this will last a maximum of just 3 years. This is 2-3 years less than an IVA and far less than the time it would take you to repay all of your debt using a DMP.
Before you go bankrupt, you need to consider some other things such as what happens to your car. So you should not go ahead without first speaking to us for advice.
Want further advice about managing mortgage shortfall debt after repossession? Give us a call (0800 077 6180) or complete the form below. It’s free and confidential.
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