How will an IVA affect my home?

One of the most common questions we get asked at PayPlan is how will an IVA affect my home. Unlike with bankruptcy where you may have to sell your property, an IVA protects your home and allows you to continue making your rent and mortgage payments as normal. To help explain how your home will be treated, we have gathered some real life examples from our clients.

Homeowner IVA Examples

An IVA can help you if you’re a homeowner with a mortgage

PayPlan helped a nurse who owed over £25,000 on credit cards. She owned her own home, and was worried that she would be forced into bankruptcy where of course she risked losing her home.

We set up and completed an IVA where she paid £150 a month for 5 years. As she owned a property, she was asked to obtain a valuation of her property in month 54 of the 60 month IVA. Since she had equity in her property, she had to attempt re-mortgage to release the equity in her property

As she was unable to re-mortgage, her IVA was extended by 12 monthly payments of £150. Her home would never be at risk of being sold. If she had little equity 6 months before the end of the IVA, she would not be expected to re-mortgage and her IVA would end after 5 years.

When her IVA had finished after six years, creditors had agreed to write off almost £15,000 of her debt and reduced her monthly debt payments by more than £500.   She therefore avoided bankruptcy, was debt-free within six years and her home was protected.  

An IVA can help you if you have a significant amount of equity in your home

We helped a retired couple who owed over £30,000 on unsecured loans and credit cards. They owned their own home, with £40,000 equity.

They had lived in their home for over thirty years so were particularly anxious to avoid their home being sold, which would probably be the case in bankruptcy. The husband was also disabled and the property had been specifically adapted for his needs. After their living costs were taken into account, they could afford to make a monthly payment of £300 towards their debts.   

Even though it appears they could sell their property and pay off their debts in full, they would be unlikely to find another property that had been specifically adapted to suit their needs.

We set up an IVA over five years, and explained to their unsecured creditors that the increased costs in bankruptcy of the property being sold against the client’s will, actually meant that creditors will receive a higher dividend in an IVA.

Creditors agreed to the IVA, which wrote off around £100,000 of their unsecured debt and reduced their monthly debt payments by more than £600.

Full and Final IVA Examples

It may be possible to use a full and final IVA to write off your debts, if you have access to a large sum of money.

You could use funds from a house sale for a full and final IVA

PayPlan helped a government worker who owed over £40,000 on unsecured loans and credit cards.  

After paying for his monthly mortgage payment and high transport costs, he was unable to afford any payments to his unsecured debts.   He was worried about bankruptcy as it could affect his future employment and his mortgaged property may also be sold.

We set up an IVA where he put his property on the market which was sold within twelve months. The equity from the sale was approximately £15,000 and paid into the IVA in full and final settlement of his unsecured debts.

This particular IVA was completed in an extraordinarily short period of time (fifteen months) with creditors agreeing to write off £25,000 of his unsecured debt. He therefore avoided bankruptcy and was debt free within fifteen months.

You could use funds from a remortgage for a full and final IVA

PayPlan helped a teacher who owed over £50,000 on unsecured loans, credit cards and store cards. She owned her own home which contained £40,000 equity. She was anxious about bankruptcy as it could affect her future employment and her mortgaged property would probably be sold as a result. After her living costs, she could afford to make a monthly payment of £300 to her debts.

We set up an IVA, in which she obtained an offer of re-mortgage from a mortgage lender. Once the creditors concerned had agreed to the IVA, she re-mortgaged to release £20,000 which was paid into her IVA, in full and final settlement of her unsecured debts.

The IVA was completed within just six months, with creditors agreeing to write off £30,000 of her unsecured debt. She therefore avoided bankruptcy and was debt-free within just six months.

Renting during an IVA

An IVA won’t affect your current rent contract during an IVA and you will be able to continue making your payments as normal. 

An IVA can help you if you’re a tenant in rented accommodation

PayPlan helped a police officer who owed over £40,000 on loans and credit cards. After taking into account his living costs, he could afford a reduced monthly payment of £200 to his debts.

He was worried about bankruptcy as it may affect his job, and we set up an IVA where he made that affordable payment of £200 a month for five years. This meant that his creditors agreed to write off £28,000 of his debt and reduced his monthly debt payments by more than £800.

He avoided bankruptcy and was debt-free within five years.

You can find more information about renting during an IVA here.

Landlords

If you own numerous properties and rely on them for income, it is possible to continue renting them out while in an IVA.

An IVA can help you if you’re a professional landlord

We helped a landlord who owed over £200,000 on unsecured loans and credit cards. The landlord owned 28 buy-to-let properties, most of which were rented out to tenants. The landlord was anxious to avoid bankruptcy, as most of his properties would then be sold.

We assisted the landlord with compiling a 12-month cash flow for all his buy-to-let properties, which showed the monthly profit he was making. We arranged a meeting in person where we were able to discuss each property, to ensure that it was dealt with accurately in the cash flow. After the client’s buy-to-let expenditure, and personal living costs were taken into account, he could afford to make a monthly payment of £800 to his arrangement.

Creditors agreed to write off over £150,000 of his unsecured debt and reduced his monthly debt payments by more than £3,000. He avoided bankruptcy and was debt-free within five years.

An IVA can help you if you’re a ‘part-time’ landlord

We helped a teacher who owed over £60,000 on unsecured loans, credit cards and store cards. She owned her own home where she lived with her husband and two young children, and also owned a second property which she rented out. She was very worried that in bankruptcy, both properties would be sold.

We assisted the client with compiling a 12-month cash flow for her second property, which showed the monthly profit she was making. After the client’s buy-to-let expenditure and personal living costs were taken into account, she could afford to make a monthly payment of £300 to her unsecured debts.

We then set up and completed an IVA for the client, which protected both her properties. Creditors agreed to write off £42,000 of her unsecured debt and reduced her monthly debt payments by more than £1,500.

 

*In the case of a one-off lump sum settlement