By entering into an Individual Voluntary Arrangement (IVA) you will not be forced to sell your house. However, you may be asked to raise capital towards the end of your agreement to make a final payment to your creditors. This will depend on the value of the property and the other loans secured against it. This article explains what to do when you have an IVA restriction on a property.
How does an IVA affect my property?
An IVA is not something that would involve direct security on a property. In the fifth year of an IVA, the debtor can be required to try and re-mortgage their property in order to release equity for their creditors. If they successfully re-mortgage then the IVA is concluded in that fifth year. The new mortgage itself would not be directly connected to the IVA and would simply be a normal secured debt. IVAs are never ‘joint’ but a couple can have ‘interlocking’ IVAs that are administered together. If this is the case, your mum’s partner should speak to the insolvency practitioner (IP) dealing with the IVAs to establish the way forward. The person dealing with your mum’s estate should also contact the IP to inform them of the situation and to ascertain what debts (if any) remain outstanding.
Do I have to have equity in my property to qualify for an IVA?
Not necessarily. You need to have either a lump sum available to offer to creditors or a reasonable amount of disposable income to pay into your IVA on a monthly basis to go towards your debts. If you do have equity in your property you will be asked to remortgage within the final year of your IVA to release funds for your creditors. However, you will not be expected to remortgage above 85% loan to value so if you have less than 15% equity in your property it will not be considered within your IVA proposal.
Can I sell my house whilst in an IVA?
The simplest answer to this question is probably to speak to your IP about the property being sold to see what implications selling the house will have to your IVA. You could check through your IVA documents to see what you have already agreed with any equity, or lack of equity if the house is sold.
It may be that your IVA can continue with a higher, or lower, payment or it may be that there is no ability to pay anything further into the IVA other than from the sale of the property.
All your creditors are concerned with is the relative equity in your homes before and after the purchase. It’s normal for you to have to release equity in your home towards the end of your IVA to contribute towards your debts.
Will I have to sell my house to pay off my IVA?
Your IVA agreement will outline the expectations of releasing funds from your property as part of your IVA. You may be expected to remortgage rather than sell, in which case you will not lose your home, and you cannot be asked to remortgage to a higher amount than 85% loan to value. If you are required within your IVA to sell your house, then the other way to raise money is to increase your monthly income by either changing jobs, doing overtime or taking on a second job.
If I enter an IVA, will I lose my home if there is a charging order on it?
Yes, you can still enter an IVA, although the Charging Order won’t be included as it is a secured debt. If other creditors attempt to put Charging Orders on, your IP can get an Interim Order (whilst drafting your IVA proposal) to prevent them from doing so.
If you cannot release any equity at the end of the 5th year, you will not have to sell your property. Your proposal will probably state that you must pay into the IVA for a further 12 months.
IVAs do not require any court representation, your IP will convene a meeting of your creditors (to vote on your proposal) on your behalf (this is all done electronically these days).
How much of my equity will be used to pay off my IVA?
You will need to discuss this with the IP who supervises your IVA, as the way your property, equity and contributions are all dealt with is agreed during the very early part of the IVA process. Your proposal to creditors will have the details of your offer and will have covered in detail what would happen in the event of money becoming available to creditors. The IVA is not designed to bring debt down, it is designed to ensure that you can pay back the amount you can actually afford to pay. The amount of money that is written off at the end of the IVA is the amount of money that you cannot afford to pay back.
What if I have completed my IVA, will the company have a claim on my equity?
If your IVA has been formally completed you will have had confirmation of this in writing from your IP. Then your creditors would not be able to claim any equity from your house. If you are in any doubt you should contact your IP for advice.
I have sold my house, do I have to hand over my equity to IVA creditors?
You will need to ask your IP how they have arrived at the figure you owe. Your IVA proposal and documents will also explain what has been agreed between yourself and creditors.
If your IVA has requirements about the property or the equity in the property, and these are not complied with then the IVA can be failed. Your creditors will then have all of their original rights to pursue you for the debts restored. The danger here could be that one of them decides to petition for your bankruptcy as a means of getting the money from the property. If you have sold it and given the money away then the Official Receiver can get it back and you may be subject to bankruptcy restrictions for several years. Before taking any action you may be the best reading through your IVA documents again and discussing further with your IP.
I’m selling my property, how will this affect my IVA?
If a property is sold then the money that is profit will be distributed to those who are entitled to their share of the money, these could be part owners, mortgage lenders, secured loans, charges previously placed on the property.
It would be difficult to say anything beyond that and you may need to speak to the solicitor dealing with the sale of the property to clarify the details. If you have used an IVA to deal with your debts then you can ask your IP what you need to do next. If you have used bankruptcy then it could be that your share is paid to the Trustee in bankruptcy to administer, again you could contact and ask them.
Will an IVA company find out if I am selling my house?
If you are currently in an IVA then you should advise the IP (the person managing your IVA) of any changes in your financial circumstances as soon as possible.
Can I get an IVA if one of my creditors has a charge on my house?
Yes, you can. However, the creditor which has a charge is unlikely to be involved in the IVA. Like your mortgage, they will be content to rely on their security in your home. If the house has been sold and that debt is no longer secured the shortfall could then be included in an IVA (or in bankruptcy).
Can an IVA company put a charge on your property?
Ordinarily, in the 4th year of a standard IVA, the IP will ask the client if they can re-mortgage their property (up to a loan/value of 85%). In the event that the client is unable to re-mortgage, it is likely that the length of the IVA will be increased to 6 years.
However, the IP does have the power to put a charge against the property, should he/she deem this to be the most appropriate this to do.
Please note that if a creditor had a charging order in place prior to the IVA being approved then this debt or any other form of secured debt will not be included.
Can I own two homes with an IVA?
This will need clarification with the IP proposing your IVA and is something that is likely to be negotiated as part of getting you IVA accepted. We would hope that you can keep your ownership and part ownership of both homes, but you are likely to have to release your share of the equity in both at some point during your IVA to repay your creditors as much as you can afford.
Can I rent when I’m on an IVA?
There’s nothing stopping you moving whilst in an IVA. However, you would be best advised to discuss any proposed changes in your income or expenditure with your IP before taking action. Changes to the amount of money available to your creditors could mean that you are able to afford a higher payment to your IVA and your creditors are unlikely to object to receiving more money back. It could be that the change means you are unable to maintain payments at the amount agreed in your IVA proposal and this may require your IP to ask your creditors to agree to a change. If your creditors do not agree to a change then your IVA could fail.