When you are looking for a debt solution that will help you to make a fresh start, you may be worried about the impact on your home. If you enter into an individual voluntary arrangement (IVA), will you be able to stay in your home? Will there be any impact on your mortgage? And what if you want to obtain a mortgage while you are insolvent? Let’s answer each of these questions one at a time.
Will You Lose Your Home with an IVA?
This is a prime concern that many debtors have when considering bankruptcy. If you thought about declaring bankruptcy but would prefer a solution which does not endanger your home, you may be wondering whether an IVA is a suitable alternative.
You usually will not lose your home while you are on an IVA.
With an individual voluntary arrangement, you can negotiate to keep your assets out of the agreement. That includes your home and land, your automobile, electronics, jewellery, and other property with significant monetary value.
So in terms of protecting your property, an IVA is definitely the right option.
Can Your Mortgage Be Included in Your IVA?
While you are thinking about all this, you may be wondering whether your mortgage is one of the debts which you can include in your IVA. Can you reduce or release some of your mortgage debt?
The answer to this question is, “probably not.” In theory, you can include some secured debts in an IVA, but it is difficult to get creditors to agree to this, so it is unlikely that you will succeed with it. Your IVA will probably include mostly or entirely unsecured debt.
Will You Be Forced to Remortgage Your Home with an IVA?
Another issue to consider with an IVA is whether you have significant equity in your home or not.
- If you do not have a lot of equity in your home, an IVA may have little or no impact on your mortgage at all. You will probably not have to remortgage.
- If the equity in your home significantly exceeds the unsecured debt that you owe, you may not actually be defined as insolvent at all. Your creditors may expect you to remortgage your home to release the equity to pay off your debts. If this is the case, they will probably not approve your IVA at the meeting.
- You may be in a situation somewhere in between, where you do not have so much equity in your home so as to qualify as solvent, but the equity is still substantial. In this situation, your mortgage will be considered around six months out from the end of the IVA. If your creditors and IP determine that releasing the equity through remortgaging could help you to significantly square away your debts, you may be asked to do so.
- If you are unable to afford remortgaging in the scenario above, you will be able to skip it. In this situation you will be required to continue making monthly payments for an additional 12 months. This is why IVAs sometimes last 6 years, not 5.
Now, one thing to keep in mind is that you will need to continue making regular, timely payments on your mortgage through the duration of the IVA. Remember, your IVA will probably not include your mortgage, so you will be in charge of keeping up with it separately. It will be considered in your monthly bills when the amount you pay monthly to your other creditors under the IVA is determined. So you should be able to afford it.
Because the mortgage is not included in the IVA, your mortgage lender may still be able to raise interest and assess penalties and fees. If these become unmanageable, you can ask for a review of your IVA to set a new monthly payment amount.
If you decide to stop paying on your mortgage, an IVA will not protect your home.
What About If You Have More Than One Property?
This is a matter to carefully consider before you apply for an IVA. You can propose an IVA if you own more than one property, and you may even get it accepted. But there is a good chance your creditors will object, depending on the specifics of your situation. They may demand the sale or equity release of one of the properties before you are approved for an IVA.
Can You Obtain a New Mortgage with an IVA?
Finally, one more important question is whether you can obtain a brand new mortgage while you are on an IVA. The answer to this question is “no” for a couple of reasons. The first reason is that you need to get permission from your IVA supervisor (the IP) for borrowing new credit above £500. Your supervisor probably will not approve a new mortgage as this is obviously a substantial amount of new debt.
The other reason you cannot get a new mortgage while you are on an IVA is that you are not going to find a lender who will approve the loan. You would simply be seen as too big a risk. Your credit rating is not going to be acceptable.
Plus, think about this question contextually for a moment. Is this really the time in your life to take out a new mortgage? Probably not. This is a time for clearing your slate, not taking on new debt. Before you can embark into a financially viable future, you need to release yourself from the debts of your past. Only after you have reached a point where you are solvent can you make wise decisions about going forward.
IVAs and mortgages are a complex topic, as you can see. There are many individual considerations to account for, and on your own it can be difficult to guess what will happen. You do not want to leave the fate of your mortgage up to chance. This is why you should always consult with a debt adviser before you proceed forward. A licensed Insolvency Practitioner is just the right person to help you. To get in touch with an IP at Carrington Dean, call 0141 221 2323.