One of the advantages of an Individual Voluntary Arrangement (IVA) is that your home should be protected from repossession. This is because you will be able to include sufficient budget in your living expenses to pay your mortgage and any secured loans on time.

If once you have started the Arrangement you find that you are still struggling with your mortgage payments you must discuss this with your management company immediately. It may be that they can arrange for a payment holiday to help get your finances in order or even a reduction in your monthly payments if they were incorrectly calculated.

Given these options it would be rare to find yourself facing home repossession during an IVA.  However if this does happen despite all of your best efforts we explain your options.

Find suitable alternative accommodation

If your home is being repossessed during your IVA you need to inform your Insolvency Practitioner (IP) as soon as possible.

You will need to find alternative accommodation for yourself and your family which may well be in the form of a rented property but before doing this you will need to speak to your IP and agree what budget you can afford.

It is likely that they will want to do a review of your income and living expenses to get an up to date picture of your financial situation.

If you do not have sufficient budget in your living expenses to pay your expected rent your IP might have to consider the possibility of asking your creditors to allow you to reduce the amount you pay into the Arrangement.

Can you add a mortgage shortfall to your IVA?

After your home is repossessed if there was any equity in the property this will have to be paid into your IVA as a windfall. However it may also be possible that there will be a mortgage shortfall. This is where the money that your house is sold for does not cover what is left to pay on your mortgage.

Where this happens you will still be liable for paying this debt but because it is now unsecured it may be possible to add it to your current IVA.

If the mortgage shortfall debt is more than 10% of the total original debt in your Arrangement then your IP will have to get the agreement of the creditors to add it. They will normally agree to this if what they will ultimately receive is still better than if you go bankrupt.

BMD Tip: It is possible that your creditors will ask for your IVA payments to be extended to compensate for the additional debt. However this should not be for more than 12 months.

Should I simply declare myself bankrupt?

If your creditors will only agree to add the new shortfall debt if you accept an extension to your monthly IVA payments or even an increase in the amount you pay you should think about whether you will agree to this very carefully.

Remember because you are no longer have your property to protect there may not be nothing to prevent you from deciding to go Bankrupt.

The main advantage of this is that if you can afford to make payments you will only be required to do so for three years. As such if your creditors are demanding an extension to your IVA which would mean your payments last for far longer than 3 years Bankruptcy would mean you get debt free sooner.

BMD Tip: If after looking at your revised income and living expenses figures and the new rental payment that you will have to pay you can no longer afford to make payments into your IVA then Bankruptcy may work very well for you as you would not have to pay any monthly payments and will be debt free in 12 months.