Find out what will happen to your home, savings, pension and other assets if you enter into an IVA.
What will happen to my home in an IVA?
Your home may or may not be included in the IVA proposal. This will be determined by your circumstances.
If you do not have more than £5,000 of equity in your home (the amount left after your mortgage and other secured creditors have been paid when the house is sold) then it is unlikely the house will be included in your IVA.
However, if you have a large amount of equity, your creditors may ask for part of your share of it to be included. If you own your property jointly, with your wife for example, then your share would be half of any equity.
You would normally arrange to contribute your share by re-mortgaging your property during the course of the IVA, usually near the end. The amount raised will never be more than the remainder of the debt you owe and will never be more than 85% of your share of the equity. If there is no equity or you can’t get a re-mortgage, you may be asked to make up to a year’s further contributions – but never more.
A further advantage of an IVA is that you will have a number of years to arrange this whereas in bankruptcy you would be allowed a maximum of 12 months to do so – before being forced to sell your home to make the contribution.
If you are required to re-mortgage your property to release equity, your ability to obtain a mortgage may be restricted and is likely to be on less favourable terms. Where you are unable to obtain a re-mortgage, the IVA can be extended for up to 12 months.
What will happen to my assets in an IVA?
You must disclose all of your liabilities (debts) and assets to the insolvency practitioner (IP) acting as your nominee.
Your personal belongings including cars, computers, jewellery etc are most unlikely to be taken from you in an IVA.
However, if you have an asset such as a valuable antique, or a luxury car, you may be strongly advised to include this as part of the offer that you make to your creditors. There are a number of reasons for this:
1) If you were made bankrupt such an item would automatically be required to be sold by the Official Receiver. Creditors are unlikely to approve your IVA unless it gives them a better return than in bankruptcy. If valuable assets are excluded from the IVA then this might not be possible.
2) You are legally required to make a full and honest disclosure of all your assets. If a creditor sees that you have a luxury item that you are not prepared to include in your IVA proposal and do not have a good reason (for example sentimental value ) then they may not support such a proposal.
Remember if you do not tell your creditors that you have a valuable asset when they agree your IVA they could ask the Court to cancel it subsequently.
However, everybody’s circumstances are different. If you are at all concerned about this issue, one of our advisors will be happy to give you more information, alternatively, why not read our FAQ on setting up an IVA.
What happens if I have a secured loan or mortgage and then enter into an IVA?
You may have loans other than a mortgage secured on your home. The most common will be “homeowner loans” or “debt consolidation loans” which you may have used to pay off other debts in full in exchange for one monthly payment.
These loans may seem a solution to the demands of lots of different creditors requiring monthly payment but your house is at risk if you are unable to keep up with your monthly repayments. This could prove challenging and stressful if you aren’t quite making ends meet every month.
The “security” that the loan company takes over your property is like the mortgage that you will have with your bank or building society. The loan company has a legal guarantee that ensures that, in the event you do not make the required payments, they can demand you sell your house to pay back the loan. So, they are unlikely to agree to compromise this by agreeing to an IVA. Put simply, in almost all cases, an IVA will not involve large secured debts.
If you have a secured loan and you have also built up a number of other debts you cannot pay on time or in full, you may be able to put an IVA together that deals with the unsecured debts. You will need to keep making the monthly payments on your secured loan whilst also making your monthly IVA contributions if you want to keep your home.
Can I do an IVA without affecting my property/house?
In some circumstances your home may be excluded from the arrangement. However, if you have equity (your net interest) in your house, this will be taken into account when making an offer to creditors. You may have to release some of this interest in your property (up to 85% of your share of the net interest and never more than the total you owe) at some stage during the IVA (normally during the 5th year of your IVA). At this time, you may be expected to re-mortgage to raise money to pay into your IVA.
Your creditors are only going to approve an IVA if they consider they will get more money back than in bankruptcy. If the net interest in your property is more than your unsecured debts, then they could get it all back by bankrupting you, and forcing you to sell your home.
Usually, the net interest is released such that increased mortgage payments once the IVA is completed are no higher than the IVA payments were.
How your homeowner status affects your IVA proposal is complex and depends on many factors such as:
- Your current mortgage repayments.
- How much of the property is yours in the case of joint ownership.
- The amount of equity (your net interest) in the property.
How does an IVA impact my personal pension?
The asset that is your personal pension is not at risk in an IVA. However, you may be required to reduce or suspend payments into it for the duration of the IVA with the intention of using this money towards the IVA.
Income received from either a state or other pension schemes are considered as income when calculating how much you can afford to pay into an IVA.
If you have made excessive contributions into a personal pension plan, just before applying for an IVA, then this may be considered to be an attempt to hide money from your creditors. In the case of bankruptcy, this transaction could be reversed by court order and the money taken to be paid towards your debts. Your creditors would require the same in order to approve the IVA proposal, after all an IVA is intended to produce more for the creditors than bankruptcy.
Can I keep my car while on an IVA?
It depends on the car and your circumstances. This is the case for all high value assets. It is normal to be allowed to keep a car worth a reasonable amount, especially if needed for work or family commitments. The conditions are not as strict as with bankruptcy.
For cars on Hire Purchase, this debt is secured and therefore can’t be included in the IVA, the HP company will simply repossess the car if your do not maintain payments.
Normally you will be allow to keep making HP repayments while on the IVA, however once payments are completed, you will be expected to make increased payment into the IVA now that your outgoings are lowered.
It may be the case that you decide to cut your losses and return the car to the finance company. In this case the outstanding balance is not longer secured and can be included in an IVA proposal.
How are my savings accounts or endowments policies impacted by an IVA?
You must release money from saving accounts and endowment policies to pay towards your debts, otherwise your creditors will not accept the IVA proposal.