Holding on to equity When DMP is right choice

Summary: Holding on to equity - This paper looks at the effect of insolvency in equity on any property, and the value of a Debt Management Plan (DMP) in not having to surrender such equity.

Repaying through insolvency

In bankruptcy or an IVA, creditors will want as much of their debt back as possible and those responsible for administering the insolvency will want costs paid too. Therefore the debtor will be required to repay all they can afford to. Assets will also be considered - particularly a property. In bankruptcy the existence of equity is likely to lead to the property being taken. In an IVA, the property is protected, but the debtor will have to try and release any equity by remortgaging towards the end of the IVA.

My property is an asset

Valuations will be required and mortgages and any secured debts will be presented to calculate available equity. In an insolvency situation, creditors are not going to potentially write debt off, whilst allowing the debtor to hold on to a valuable asset. Many people choose an IVA over bankruptcy because they don't have to hand over the property. They will though have to release any equity they can. And for this reason, some homeowners shun bankruptcy and IVA's in favour of a Debt Management Plan.

Does a DMP involve my property?

A DMP is an informal repayment usually administered through a debt management plan company where the debtor repays all of their unsecured debt but through one monthly affordable payment. It is informal and creditors are under no legal obligation to freeze interest or to refrain from further action when contractual repayments are stopped. In practise, creditors are very often willing to freeze interest and to refrain from further action. The debt is being repaid, and as long as the repayment period is not too long the creditors are likely to accept the plan. Thus the equity in the property is kept and the debt is being repaid.