www.iva.co.uk

Hi,

I am still trying to decide on my best option and I need help with the numbers.

If I owe £60K and can afford to pay £500 per month into an IVA - that means I will pay in £30K over 5 years. I will then have to raise the remaining £30K by equity release. This will cost an extra £360 per month over the remaining 10 years of my mortgage.

Everyone talks about being debt free in 5 years but in reality (using the above example) it's actually 15 years !

If I was to pay the same £500 per month into a DMP, I would be debt free in 10 years - 5 years LESS than the IVA option.

Am I missing something ?

I would appreciate your views and comments/

Hi and welcome

If you think of it like this. You pay what you can afford, you dont have to find 30K eguity in five years, in fact if you had 30K equity now you might be able to remortgage now and do a full and final. In an IVA you enter into a binding agreement and are protected from creditors, what you cant afford to pay gets written off. In a DMP your creditors do not have to agree to freeze interest. They can still hassle you.

I think youre expected to raise 85 per cent of equity.

One more thing, you must be insolvent to enter an IVA.

Thanks freelili,

While I may have the 30K equity at present, there is absolutely no chance of remortgaging in the current climate.

But in 5 years time things may well have improved and in an IVA I would be expected to remortgage @ 85% LTV - this would release the required £30K and would mean that I am paying off this extra loan for at least a further 10 years.

That's what I don't understand - in an IVA are we debt free in 5 years or is it actually 15 years ?

No it isnt and its something to consider, you may be able to offer less in a full and final which may write off your debts earlier though.

Also it is important to remember the savings on IP fees with a full and final. If youre not paying the debts could you afford to remortgage now?

Or could you go into a DMP for a while and then offer a full and final. I am not a professional expert, just another person who has delt with debts. Just thinking out loud really.

It should be free from unsercured debt in 5 years, shouldnt it?

Hi mrcanoe
Current protocol states that your new mortgage can't cost more than 50% of your IVA payment [£250] so you will only be able to raise approx 20k.It will also depend on market conditions and affordability,also is the equity all yours or shared ?
Regards

I am afraid that as far as creditors are concerned, they have an attitude of - "you borrowed the money and therefore we expect you to pay it back". I agree that advertisements stating that you are debt free at the end of an IVA, could be miscontrued if you are having to raise equity, but the upside is that you get the benefit of at least an interest free repayment period, or an actual reduction of the debts that you owe. In that context, it can be difficult to view this as unfair - but as with all important life-changing arrangements, you must fully understand the agreement you are entering into.

Thanks Andy & Melanie for the clarification.

Melanie - I don't think that it is unfair at all, I fully expect to have to repay my creditors, I just didn't understand the IVA claims that you are 'debt free in 5 years'.

You have confirmed my thoughts that because of the equity release clause IVA's take far longer than 5 years to clear your debts.

Perhaps these misleading adverts need to sorted.

The Advertising Standards Agency has already taken this on board, and a number of these type of adverts have had to be amended as a result.