Summary: This article explains the impact an IVA may have on individuals who own their own home.
An Individual Voluntary Arrangement (IVA) is an alternative to bankruptcy, offering those that find themselves insolvent, with in the region of £12,000 of unsecured debt, a way to become debt free in a given period of time, usually 5 years. During this time, they pay monthly repayments, based on what they can reasonably afford, and assuming the IVA is successfully completed, any remaining debt is usually cleared. It is often preferred to bankruptcy as the debtor is usually able to keep their home.
What risk is there to my property in an IVA?
Depending on the individual’s circumstances, they may be required to release some equity in the property if there is an adequate amount available. This is usually in the 54th month of the IVA. Not all of the equity will be required to be repaid into the IVA and the IVA protocol states that the individual will be able to keep at least 15% of their net worth in the property. If the equity is less than that, it is unlikely they would be required to release any equity. In the event of the property needing to be remortgaged, it would be at a maximum of 85% of the loan to value (LTV). For example, in the case of a sole owner, where the property is worth £250,000 with an outstanding mortgage of £180,000, 85% of the property value is £212,500. After subtracting the current mortgage, the maximum remortgage value would be for £32,500, leaving the debtor with £37,500 (15%) of equity remaining.
I can't re mortgage due to my credit rating, will this affect my IVA?
It is important to discuss options with the IVA supervisor if an individual is struggling to remortgage. It may be possible to come to an arrangement with the creditors; however it could result in the length of the IVA being extended by a year, and/or an increase to the monthly repayments if finances allow.