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If you are thinking of entering into an IVA and you are a home owner you will want to know if you’re going to lose it. This blog explains all.
If you have problem debt and you’re looking to get yourself out of the red and back into the black, an IVA (Individual Voluntary Arrangement) could be a good option, if you fit the eligibility criteria. But, what if you own your house, will you lose it if you enter into an IVA?
The simple answer is no - you will not be forced to sell your home if you enter into an IVA. But before we go on to explain why that is, here’s a brief introduction to IVAs and how they work.
What is an IVA?
IVAs are a legally binding way of dealing with debts you’re not able to pay back. They allow you to pay an affordable, single monthly amount towards what you owe on your unsecured debts. The amount that you pay each month is worked out by a trained debt advisor and always takes all your other expenses, including your priority bills, like council tax, rent, food and travel to name a few, into account.
If the IVA is accepted by your creditors, your creditors will put a halt on any further charges and interest being added to what you owe. And, as long as you complete the IVA successfully, those will be written off along with any remaining debt. The IVA, once agreed, will also put a halt to any legal proceedings and any further contact you get from your creditors can be passed on to your Insolvency Practitioner, or IP as they’re commonly known, this is the person who’ll be looking after your IVA throughout the process. IVAs usually last for five years, after that time, any debts remaining will be written off, which means you won’t have to pay them.
The consequences of an IVA
As well as there being positives to having an IVA, there are also a number of negatives you need to think about too. These include:
• damage to your credit history – your IVA will be noted on your credit file. However, as it’s likely you’ve already been missing payments, and may already have defaults noted on your file, this may be of little concern to you at this point. Having a damaged credit history will make things a little more difficult for you in the future, if and when you come to apply for credit again. You may find it’s more difficult and more expensive than it would have been previously
• your name will appear on the Insolvency Register – this is a public register that can be searched by anyone.
• a restricted budget – you will be expected to put all the money you can into your IVA, this means that you’ll have to forego some of the things you may be used to having. Read our full, in-depth guide on the advantages and disadvantages of an IVA.
Is an IVA right for me?
There’s no maximum or minimum amount you need to owe and no particular number of creditors you need to have to apply for an IVA. All that needs to be in place is your genuine inability to pay back what you owe in a reasonable amount of time. What this means to you, will form part of the discussion you have with your debt advisor.
You also need to have some kind of regular income coming in every month, so that you can commit to monthly payments. This is important because if your IVA fails, it could lead to bankruptcy.
So, what happens to my home on an IVA?
When you own your home, 6 months before the IVA is due to end, you will be asked to try to release some of the equity in it – if there is any that is. An equity assessment will be carried out 6 months before the end of the IVA. A valuation of the property will be obtained (you can get your own if you wish). We will then work out 85% of the value and deduct from that anything that you still owe on a mortgage or secured loan.
If the amount left is less than £5,000 then there is no requirement to do anything with the property and the IVA just finishes at the end of the proposed term. If the amount left is more than £5,000 then you will be required to attempt to remortgage.
There are some limitations that apply - your debt advisor will be able to tell you more. If you are unable to obtain a remortgage then you will need to continue to make monthly payments into the IVA for up to 12 months longer (making your IVA up to six year long, rather than five). There are no circumstances where the IVA would require your home to be sold so as long as you are maintaining the mortgage and any other secured loan payments there is no reason why your property would be at risk.
by Shelley BowersBack to blog home