An IVA helped me keep my home.
"I avoided bankruptcy and was able to get back on top of my mortgage repayments."

IVA's and Homeowners

If you're a homeowner, this effects whether an IVA is the right debt solution for you. Here we explain:-

• The benefits of a an IVA for homeowners.
• How home-ownership impacts IVA qualification.
• How equity in your home is dealt with.

Note: IVA's are also available to non-homeowners.

Benefits of an IVA for Homeowners

There are 3 major benefits of an IVA for homeowners:-.

1. An IVA avoids bankruptcy and the possible forced sale of your home.

2. Your mortgage and other secured repayments are budgeted for before IVA payment levels are set. This allows an IVA holder to afford and maintain such repayments, thus avoiding repossession.

3. The potential introduction of equity in the IVA in year 5 (see below) can raise anticipated repayments over the threshold for which the IVA would be accepted for your debt level and affordable monthly contributions. Creditors need to get a return of at least about 30% of the original debt in order to agree to an IVA.

I'm A Homeowner - Do I Qualify For IVA?

To qualify for an IVA, you must be technically insolvent. There are two basic tests of insolvency:-

• Your liabilities (debts) are greater than your assets.
• You are unable to pay your debts as they fall due for payment.

The equity in your home is its value less the outstanding mortgage. In other words, how much of the property you own.

By assets, we mean items of significant worth that could be sold of to raise money to repay your debts. For example, property or stocks and shares etc.

If you own your home outright; or have significantly more equity in it than your total unsecured debts then you are not insolvent and won't qualify for an IVA. This is because your creditors will not forgive you some of your debt when you could sell your home to repay them in full.

If only then second bullet point applies to you, then a re-mortgage or financial management plan is likely to be your most suitable debt solution.

Your Equity In An IVA

By your equity; we mean your share of the total equity in a property.

If you are in an IVA and your partner with whom you jointly own the property is not; only 50% of the equity is a consideration.

Usually for a matrimonial home in UK insolvency law, ownership is considered to be 50/50 split between the spouses. It does not matter if the property is in just one partner's name or who has been making mortgage repayments.

Equity Release in an IVA

Six months before the end of the IVA, (month 54) you will be required to attempt to re-mortgage to release equity to pay into your IVA. There are exceptions, but this is the typical of the majority of IVA's setup over the past 3/4 years,

This is subject and/or limited to:

• Your share of the equity exceeding £5,000.
• The maximum equity release is 85% of your share of the total equity.
• Your ability to get such a re-mortgage.
• Increase in mortgage payments being no more than 50% of IVA payments.
• Affordability.

For example, if your home is jointly owned, worth £150,000 with £120,000 outstanding on the mortgage, you could be expected to attempt to release (((150,000-120,00) /2) *0.85) = £12,750.

Increased re-mortgage payments are deducted from IVA contributions until the IVA ends. If this reduces IVA payments to below £50/month the IVA will be concluded at this point.

What If I Can't Remortgage?

Being in an IVA, your ability to obtain a mortgage may be restricted and it is likely to be on less favourable terms. If you are unable to obtain a re-mortgage, the IVA can be extended for up to 12 months.

Due the net fall in UK house prices over the past 4 years  - not being able release equity as per the terms of many IVA proposals in currently a common occurrence.

IVA's and home ownership can be complex. The information given here should be treated as guidance and not definitive advice as all cases are made up of a unique set of circumstances.

For best advice on how your property or other assets of worth impact you decision to apply for an IVA, please contact us.