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How IVAs Can Affect Homeowners

An individual voluntary arrangement, or IVA, is a great way to get out of a growing pile of debt that outweighs your existing income. It is a legally binding agreement between you and your creditors that extends the repayment period with reduced monthly payments.

However, setting one up will have certain repercussions if you’re a homeowner so it’s important that you read up on exactly what will happen to you property if you enter into an IVA.

Remortgaging

When you set up an IVA as a homeowner, the value of your property will be taken into account when your monthly payment plan is devised.

Generally, a valuation of your property will need to be conducted in order to work out if there is a worthwhile amount of equity left in it that should be released.

Equity is essentially the amount of money you would receive from the sale of your home once all secured loans like mortgages are paid off.

If a meaningful amount of equity is there, then you may be required to remortgage your property in order to get hold of the cash to then contribute towards your repayments. Officially, this will be required if there is £5,000 or more worth of equity in your property.

There will usually be an upper limit placed on the amount of cash used from remortgaging that can be out towards repayments as part of an IVA. How high this limit is will depend on the value or your property and the size of your original mortgage.

Importantly, while you may be obliged to remortgage, you will not be required to actually sell your property as part of the IVA.

Will I be able to keep my home out of my IVA?

In certain very rare cases, you may be able to persuade your creditors not to take the value of your property into account when your IVA payment plan is being devised.

Speak to your creditors to see if you can do so, but remember that it is unlikely.

What if my financial situation improves during my IVA?

Any changes in your financial situation during the course of your IVA must be reported to the insolvency practitioner (IP) in charge of your case.

Indeed failure to notify your IP of any increases in salary, for example, is illegal and can result in penalty action being taken by the courts.

The chances are that if you find yourself with more money available than you had when you started the IVA, your payment plan will be adjusted accordingly.

Most IVAs include a windfall clause. This means that any large amount of money (like inheritance or a bonus at work) that you come into unexpectedly must be used, at least in part, to contribute towards your repayments.