Can’t pay my mortgage, will an IVA help

Mortgage debt is not included in an IVA. However this debt solution will help you free up cash so you can always pay your mortgage on time.

Included in this article:

How can an IVA help you pay your mortgage?
What happens to your mortgage when you start an IVA?
IVA equity release clause

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How can an IVA help you pay your mortgage?

The basic principle of an IVA is that it allows you to reduce the payments you make to all of your unsecured debts such as credit cards, store cards and personal loans. It therefore helps you free up cash so that you always have enough pay your mortgage and any arrears going forward.

The amount you pay into the Arrangement is based on your disposable income – in other words your income less your reasonable living expenses. The key is that as part of your living expenses you are allowed to include a budget to pay your normal mortgage payment.

You can also include a budget to repay any mortgage arrears you have outstanding. When the arrears are paid, this money can then be diverted back to the Arrangement to increase the amount you pay to your unsecured debts.

What happens to your mortgage when you start an IVA?

Your mortgage is secured against your home so it can’ be included in an IVA.

Once you start an IVA it forms a legally binding agreement between you and your creditors. This means that none of them are allowed to take further legal action against you to recover their debt. In addition, any action they are already trying to take is stopped.

One of the legal actions that unsecured creditors can take against your property is to secure their debt with a charging order. If this happens their debt will have to be paid in full from the equity in your property as and when it is sold.

An IVA cannot overcome a charging order if it is already in place. However, it will stop any applications for charging orders which are already with the court and protect your property against any applications in the future.

IVA equity release clause

One of the concerns that home owners have when considering an IVA is whether they will be forced to release equity from their property as part of the arrangement. The fact is that you will have to agree to release equity from your home if you are able to do so.

However, if you are unable to release equity because you are unable to get a new mortgage which will allow you to do this, then your Arrangement will not fail. Instead you will be asked to extend if for an extra year so you pay for 6 rather than the standard 5 years.

At the end of the day, if you are at risk of losing your property because you cannot pay the mortgage, you are considering an IVA because of the possibility that it will prevent you losing your home altogether. As such, agreeing to release some equity if you can afford to do to save your home from repossession is probably a small price to pay.

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