Does an IVA affect my Mortgage?

June 23rd, 2011 | Author: Lenore Ekdahl

An IVA is a formal arrangement involving you and your unsecured lenders to repay a part of your liabilities during a restricted amount of time – generally five years, yet it might be for a smaller duration.

Secured creditors expect to receive the entire contractual repayments on their secured loans to you through the life of the IVA. Assuming you have a mortgage, you’re going to be supposed to make the monthly mortgage payments to your home loan company in whole.

Unfortunately the unsecured lenders get merely a dividend on their unsecured loans to you. The actual size of the dividend can vary. It just varies according to what you can afford to pay out and whatever your unsecured lenders are ready to accept from you. Keep in mind over 75% of your unsecured creditors (measured in ) have got to come to an agreement to accept your IVA proposals before your IVA can be accepted. In reality the dividend will fall in the range of 20p in the to 40p in the , though of course it may be much lower and indeed much bigger. On occasion unsecured creditors could end up with 100p in the and possibly attain statutory interest on top of that.

Therefore any time you offer your proposals for an IVA, your unsecured lenders are not required to consent to your offer. If they think that you can make higher contributions than you propose in the beginning, then they might suggest alterations to your IVA which often might have the result of increasing the extent of your monthly contributions or indeed they can try to increase the period of the IVA for maybe six months or a little more.

Should you have a mortgaged property, unsecured creditors will definitely not dismiss this reality. They will give consideration to the recent market value of the property and the amount of money you presently must pay back to your mortgage provider. You will be asked to supply a up to date, true and honest market value of the property. You will also be asked to acquire from your mortgage supplier a existing mortgage redemption statement, displaying the entire cost of clearing your mortgage, including any early redemption penalty which could apply. By means of these two pieces of information, your creditors can swiftly check if there is any realisable equity in the property. If there is realisable equity therein, your unsecured lenders may, by means of adjustment to your proposals, require you to re-mortgage your property during the life of the IVA and bring in some or even all of any released equity into your IVA for their advantage.

A properly constructed IVA proposal will already incorporate a provision for re-mortgaging the property and furnishing equity to lenders. However, it may well be that re-mortgaging is not an route for you quite simply mainly because no mortgage company will take you on due to your unfavorable credit history. Then again, you may find that to re-mortgage the property, you might have to pay prime home loan rates for the same reason.

Even if there is virtually no equity in the property, unsecured lenders may examine the level of the monthly home loan repayments. If they are significant, creditors may suggest a amendment that you dispose of the property and relocate to rental accommodation, thus making it possible for you to elevate your monthly contributions to your IVA. As a yardstick, mortgage payments that go beyond 40% of net family income would normally be deemed to be disproportionate. Clearly if the cost of rental accommodation is significantly cheaper than your monthly mortgage payments, then it is not surprising that unsecured creditors would propose such a modification.

In recent years, property values have dipped sharply, and many people find that their property is in negative equity. This simply means that the cost of redemption of their mortgage is greater (sometimes substantially greater) than the current market value of the property. If forced to sell, the shortfall due to the mortgage provider now becomes a further unsecured liability and so would rank for dividend with the other unsecured creditors, thus depressing the dividend in an IVA.

Don’t forget that your partner or spouse may have an equitable interest in your property. In numerous scenarios that interest is 50% of the equity. Your family members may also have legal rights of residence in the home which could quite possibly make a enforced sale complicated for lenders, at the very least. In conclusion then, an IVA can indeed influence your mortgage but the good news is that in most circumstances, debtors will probably not ‘lose’ their home in an IVA.

If you are considering entering into an IVA and are concerned that it might affect your mortgage, you should initially consult with an Insolvency Practitioner, otherwise known as an IP, for advice. A reputable IP will look at all of your financial circumstances. You should incur no costs in obtaining this advice. Your IP will go on to advise you on all of the options open to you including entering into an Individual Voluntary Arrangement (IVA). That is not the only option. You might consider entering into a Debt Management Plan or even petitioning for your own Bankruptcy. There may be other options available as well. You can choose the best option for yourself in the light of the advice provided by the IP.

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Does an IVA affect my Mortgage?

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