Summary: This article reviews the impact an IVA may have on personal items of value, such as a house or car.
How an IVA impacts on an individual's assets?
Unlike bankruptcy, where assets of value such as a car, savings or item of value, are usually required to be sold in order to repay creditors, an IVA does not automatically require their sale. However, as well as listing all debts when entering an IVA, it is important that items of value are also listed. Creditors will usually only approve an IVA if it can be demonstrated that they will receive more of the money owed than if the individual is declared bankrupt.
IVAs and a mortgage
In the case of homeowners, it is very unusual for the home to have to be sold in an IVA. However it is likely that, if there is reasonable equity it will need to be released to repay the creditors. Any release of equity should normally leave the owner with remaining equity worth no less than 15% of the value of the property. Furthermore, any increase to the monthly mortgage repayments as a result of releasing equity should generally result on no more than 50% of the monthly IVA repayment. So if the IVA repayment is £500 per month, equity usually cannot be released if it will result in the mortgage repayment increasing by more than £250.
IVAs and car owners
Generally, a car will not need to be sold if the owner is in an IVA, especially if it is required for work. However, it is possible that if it is of particular value, the individual may be expected to sell it for a car of lower value. The actual financial worth of the car can vary from case to case, but if it is worth around £6,000 or more, it may be required to be replaced with a lesser value car, with the difference being paid into the IVA.
Items of value such as heirlooms
It is unusual for personal items to be required to be sold to repay the IVA, however it is important to list any items of value when initially calculating the IVA.
IVAs and savings
With regards to any savings or endowment policies, it is quite likely that any capital will need to be released to pay into the IVA.
What happens if I don't declare items of value or savings when applying for an IVA?
It is important to be honest when submitting financial information in the IVA application process. Failure to do so could result in the creditors refusing to agree to the terms which could result in bankruptcy. The Insolvency Practitioner (IP) that is supervising the case will be able to provide any advice required when submitting the information.