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Living on a debt solution

Will I lose my home with an IVA?

Posted 24 September 2016 by Emily Bancroft

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You don’t need to worry that your home will be at risk on an IVA.

If you’re struggling to afford your unsecured debt repayments, you might be thinking about starting a debt solution to help you deal with this. One option you might consider is an Individual Voluntary Arrangement (IVA), a formal debt solution designed to deal with insolvency.

It’s common to feel nervous when you’re looking at a formal debt solution, particularly if you don’t know how it’ll affect your life. For example, if you’re a homeowner, would your home be at risk on an IVA? Don’t worry – you won’t lose your home with an IVA – we’ll take you through what will happen on the solution. 

 

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Protecting your home

An Individual Voluntary Arrangement (IVA) is an insolvency solution like bankruptcy, so these two solutions share some similarities. But while you could have to sell your home with bankruptcy, this won’t happen on an IVA. So, if you’re a homeowner, an IVA might be more suitable for you than bankruptcy, as it means your home will be safe.

There should be no reason why you would ever lose your home on an IVA, unless you’re not keeping up with your mortgage payments or any secured loans. If you’re not sure how the debt solution works, check out our blog on whether IVAs are a good or bad thing for all you’ll need to know.

What happens on an IVA?

Even though you won’t lose your home on an Individual Voluntary Arrangement (IVA), you still might have to release equity from it. You’ll do this by remortgaging your property and paying the money you release into your IVA.

You’ll usually only be asked to do this if you’ve got more than £5,000 of equity in your home. Your Insolvency Practitioner (IP) will only be looking at your share of the equity – so if you own your property jointly with your partner, they’ll just look at half of the equity. You’ll be expected to do this around six months before the end of your IVA and your IP will work out if you need to try to release equity from your home. They’ll base their calculation on 85% of the current property value and work out if you’ve got more than £5,000 equity from this. Don’t worry if this sounds complicated – your IP will calculate all this for you.

If you have got more than £5,000 in equity, your IP will usually put in your IVA proposal that you’ll need to at least attempt to release the equity from your property. You might not be able to get a remortgage <<link to 013>> because your IVA has damaged your credit history. If you can’t get a remortgage, don’t worry – it just means your IVA will last up to an extra 12 months. And if you’ve got less than £5,000 in equity, your IVA will just finish at the end of the agreed term as normal, as long as you’ve paid everything else you need to.

Is it right for you?

Speak to a debt advisor if you’re considering an Individual Voluntary Arrangement (IVA). They’ll be able to look at your income and expenditure, and see whether they think an IVA is the best solution for you.

You might want to consider an IVA if you’ve already looked at an informal solution such as a Debt Management Plan (DMP) and it isn’t right for you because you wouldn’t be able to pay your debts off in a realistic timeframe. As an IVA would usually last five or six years, it could mean you’d be able to get debt free quicker.

But there are some important things you need to consider when you’re looking at an IVA. It will damage your credit history directly for at least six years. This can make it harder to take out credit in the future as some creditors may be more likely to turn you down. And, even if they accept you for credit, it could be at a higher interest rate. You shouldn’t take out any extra credit during an IVA without your IP’s consent, but this might affect you if you’re looking to borrow soon after your debt solution has ended.

While you’re on an IVA, your details will also appear on the publically available Insolvency Register. The Insolvency Register is for creditors and credit reference agencies use this when they’re updating their files. But as it’s publically available, it’s possible someone else could find out about your debt solution if they happened to search for you.

You can get in touch with our debt advisors using any of the options on the left and they’ll talk you through all of the different debt solutions available. There are fees for some solutions but the initial advice our debt advisors give is always free. And remember – no matter how serious your debt problems seem, there’s always a way to get debt free.

 

by Emily Bancroft

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To find out more about managing your money and getting free debt advice, visit Money Advice Service, an independent service set up to help people manage their money.