Will my house be safe in an IVA? IVA Issue
Summary: Will my house be safe in an IVA? - This article examines the impact of an IVA (Individual Voluntary Arrangement) on your house and what releasing equity may involve.
A safe house
You will not normally be required to sell your house in an IVA. Creditors are not allowed to take any action against you or your house once an IVA has been agreed. Unlike bankruptcy, an IVA provides you with real security as far as keeping your property is concerned. For those who own more than 1 property, any expectations about selling a property will have been discussed with the Insolvency Practitioner at the outset.
Towards the end of an IVA, you will be asked to see if any of your equity is releasable through remortgaging. It may well be that with little equity and a less than great credit rating, releasing such equity may prove impossible, and thus you have done all you can to pay back your debt within the agreed time span of the IVA. It is possible that creditors will require the IVA to run for a 6th year in lieu of such equity release. Again, this should have been discussed with the IP at the start.
Equity release protection
The whole point of the IVA is to ensure that you have the opportunity to live within your means and break the vicious circle of credit dependency. Whilst every effort has to be made to repay as much of the debt as possible, an IVA should not put the debtor back into a position of financial hardship. Therefore if remortgaging is a possibility, the increase in mortgage payments should not be prohibitive. Normally, the extra mortgage payment must not be more than half of the payment made within the IVA.
Single IVA, joint house
If an individual is in an IVA, but co-owns a property with someone else, the equity belonging to the other person, is ring fenced, and cannot be used to help fund the debtors' IVA. Their share of the equity is absolutely protected.
The dangers of bankruptcy
One of the most difficult aspects of bankruptcy for homeowners is the risk of losing their house in bankruptcy. An IVA provides a safeguard for the property. Whilst creditors want to feel the debtor is doing all that is possible to repay as much of their debt as they can within a limited time frame, they will not be allowed to ask for or force a sale of the property. Thus an IVA provides a significant advantage over bankruptcy for homeowners.