can somebody explain how a lump sum iva works

[tre]

Ok, have appointment with bank tomorrow to discuss finances - have gone through everything this evening and prepared budget sheets, list of creditors, list assets, income etc. What is very apparant is that we only have enough money to live and pay mortgage and bills. The credit works out at £1,400 per month and that is just to service some of the accounts.

We have equity in house and a number of other 'assets' profit share, saye etc but not available right now. Budget planner shows £250 disposable income (very tight) with debts of £60,000 to 6 creditors I don't think this will be accepted for iva - can somebody explain how a lump sum iva works. If we could raise 2nd mortgage we may be able to offer lump sum now.

[MAY2006]

Hi tres. I'm sure some of the experts will post later once they have finished their 'day' jobs but I can tell you what I did.
My IVA was done through Grant Thornton and was a full and final settlement IVA. We remortgaged 85% to value and released £43500 equity which gave the creditors 39p in the £ and was accepted. The IVA was completed inside 12 months it should have been 6 but the tax man wanted an extra years accounts including.
By raising the maximum we could afford we had no spare income to offer and therefore did not have to make monthly repayments.
If you can do this I feel it is better as now I am 10 months post IVA and can get on with my life.
However I now have a mortgage that is double what I had two years ago and am paying interest on that and will be for the next 16 years, but I don't think I would have ever paid by debt off as we were just paying minimum ammounts.
Be careful with the bank, don't borrow anymore and don't mention IVA to them. You mention you have £250.00 disposable income is that after paying credit? You need to work out Mortgage, utility, Council tax etc, plus a reasonable amount to live on, petrol, car tax etc really everything but your credit then you will know if you are insolvent.
If I were you I would go to see citizen advise debt management and go through your options with them.

[tre]

Hi thanks for your response. £250.00 disposable income is what is left when mortgage,council tax, housekeeping etc is paid. Given that the monthly amount to creditors is £1400 - I am about £1150 adrift every month.

Appointment with bank was cancelled by them so am going to proceed with safe account have applied to NatWest and pull plug on bank next week. They are our biggest creditors!

Apart from the fact that I have little disposable income(or none if I am to meet creditors payment in full) because we have 'investments' that will mature in 1,2 and 3 years it means that we can rectify the mortgage bit as and when funds become available. I don't want to shirk my responsibilities here, for one reason and/or another we have spent this money! I want to pay back as much of it as I can, but I also NEED to do this so that I can move forward with my life and my children. Bottom line is I do not have £60K sitting around to use to pay this off. I do have a house, quite a sizeable mortgage already, but still with some equity. My mortgage has a redemption penalty of £11,500 so re-mortgage is not so straight forward but will speak to broker who arranged mortgage and see what they suggest.
Thanks

[MelanieGiles]

Hi tre - and can I say that you have received some very sound advice from May 2006 with regard to equity release.

Your £250 would easily support the increased mortgage repayments were you to follow that route - the only downside being that you have higher mortgage payments for a longer period. It is a good idea to check with your mortgage broker - but I have some concerns as to why you were put into a mortgage with such a high redemption penalty in the first place. Can you advise the circumstances of when you took out this mortgage?

You will also need to declare the investments if you are to get creditors to consider your offer, as they could be better off by waiting for those to mature. How much do you currently value the shares at?

And finally, how much equity do you have in the property, and what is it presently valued at?

Regards, Melanie Giles, Insolvency Practitioner for over 20 years.

For further details contact me at http://www.melaniegiles.com and view my IVA blog at: http://melaniegiles.blogs.iva.co.uk

[tre]

Hi Melanie,

Have fixed rate for 5 years with NR only one year into it so penalties very high. A rough estimate of equity would be £60-70K with a current value of £360,000. Investment due next year approx £3,000, following year £5,000, 2010 £2,800. The equity is not such a problem but salary to loan might be!

Can you advise what I should do next? I am feeling a little more up today but can't get out of my mind constantly thinking about it and how it happened and how to resolve it.

Am very appreciative of all the support from the Forum and its experts.

[MelanieGiles]

Hi again

So you have equity at a similar level to your debts, with an enormous penalty if you seek a re-mortgage. First point of call might be to Northern Rock to see if they will allow you a further advance for debt consolidation. If so, you could make offers of settlement to your creditors, or even use the money to substantially reduce the balances owed to a level where you may be able to fund repayments. Then you could use your investment monies as they fall due to reduce the liabilities even further.

I have to say, from the facts that you have presented, that you appear to be completely living beyond your means, and perhaps the right sort of advice would be to get you to look at your overall position and decide whether you can afford continue to live in that property. Maybe downsizing is an option that you should consider, as additional borrowings will just make the situation worsen in time.

Regards, Melanie Giles, Insolvency Practitioner for over 20 years.

For further details contact me at http://www.melaniegiles.com and view my IVA blog at: http://melaniegiles.blogs.iva.co.uk

[Adam Davies]

Tres
I think with a shortfall of over 1k a month you need to do something NOW.
With a disposible income of £250 before paying any creditors you need to be realistic and consider wether you really can continue with you current house and mortgage.
Downsizing is always difficult because its so public to friends and family but you need t be realistic in that you are increasing your debt at a rate of a £1k per month.
If you do not act soon your investments in the years ahead will be swallowed up by trying to service your debts.
You really should consider selling up and using the equity to offer a full and final settlement to your creditors,go into rented and then bounce back when you are debt free.
Regards

Andy Davie
IVA.co.uk Spokesperson and site manager
(aka Neverending)

Please check out my blog: http://andydavie.blogs.iva.co.uk

[tre]

thanks for your advice, I have been thinking along the same lines but as you rightly point out it is so very public to friends and family - also kids are settled in schools and renting in the area without moving schools is the same cost as mortgage, although obviously I wouldn't have this huge debt that I can't pay. Am trying to be very grown up and sensible but feel very stupid and childish. Feel I have to try to hold on to the house at all costs have had crap couple of years with personal and financial stuff and want to turn the corner. Hubby due promotion, had meeting with boss this morning and looking very very positive but will take 10-12 weeks to effect. Will make a difference to salary of £5 - 7 K [:-(]

[MelanieGiles]

Taking an average of £6k, that will only give you an extra £250 per month (assuming he is a 40% taxpayer), so you could propose an IVA based upon £500 per month with an equity release at the end, but you will be paying 100p in the £ and the IP's costs.

The IP's costs, will be lower than your redemption penalty however, and you could therefore remortgage to offer a full and final settlement when you are out of that tie in period, or sell your investments as they mature. You are therefore looking at paying over £70k over five years, to meet £60k of liabilities, and creditors may also ask for statutory interest at 8% per annum.

You need to try and stop all of the negative feelings that are going through your mind, and try and focus on finding a solution to put your finances in order for the future. It seems that either an IVA or Debt Management programme is a sensible solution - with a debt management programme you have to get every creditor to agree to your offer, whereas under an IVA there is a 75% acceptance criteria.

Regards, Melanie Giles, Insolvency Practitioner for over 20 years.

For further details contact me at http://www.melaniegiles.com and view my IVA blog at: http://melaniegiles.blogs.iva.co.uk

[MelanieGiles]

Taking an average of £6k, that will only give you an extra £250 per month (assuming he is a 40% taxpayer), so you could propose an IVA based upon £500 per month with an equity release at the end, but you will be paying 100p in the £ and the IP's costs.

The IP's costs, will be lower than your redemption penalty however, and you could therefore remortgage to offer a full and final settlement when you are out of that tie in period, or sell your investments as they mature. You are therefore looking at paying over £70k over five years, to meet £60k of liabilities, and creditors may also ask for statutory interest at 8% per annum.

You need to try and stop all of the negative feelings that are going through your mind, and try and focus on finding a solution to put your finances in order for the future. It seems that either an IVA or Debt Management programme is a sensible solution - with a debt management programme you have to get every creditor to agree to your offer, whereas under an IVA there is a 75% acceptance criteria.

Regards, Melanie Giles, Insolvency Practitioner for over 20 years.

For further details contact me at http://www.melaniegiles.com and view my IVA blog at: http://melaniegiles.blogs.iva.co.uk

[tre]

Hi Melanie

Can I ask you to clear something up for me? I am right in thinking that because I have equity/assets I must meet all of my outstanding debt. So £500 per month for 60 months would leave me with a shortfall of debt of £30,000 + IP fees would I then have to remortgage to release this sum to pay creditors in full and final settlement? If I had no assets then creditors would accept reduced sum per £ and only a proportion of my debt will be paid? Please don't get me wrong I want to pay this in full but making sure I have got a good understanding of how the IVA works. Problem with this is don't have £500 right now per month - might have in 3-4 months so what do I do now. If NR agreed to a further advance for £30,000 this would give a return of 50p in £ how does the IVA process work for full and final settlement? I am trying to work this all out - want to do what is best for everyone! What would IP's approx costs be for this?

Thanks again for all your help.

[Adam Davies]

Tres
If you do have £500 per month disposible income this will return about 22k to your creditors[30k less 8k fees] and would be a dividend of just under 40p.You would have a final year equity release clause and would have to try and remortgage to about 85% of your property value.
If you can raise the 30k now[before the pay rise] and show that you have virtually no disposible income[increased mortgage payment] then I think you would stand a good chance of a full and final settlement[you would return about 25k,just over 40p].You have to consider the moral implications though as you are possibly getting a pay rise in a few months[how certain is this??]
Are you sure that your disposible income is only £250 ?? Have you allowed for any non essential expenses ??
Why not speak with an expert on this site,you have nothing to lose and a huge amount to gain.

Regards

Andy Davie
IVA.co.uk Spokesperson and site manager
(aka Neverending)

Please check out my blog: http://andydavie.blogs.iva.co.uk

[tre]

No I have not allowed for any non essential items in my budget, have used guidelines for housekeeping from national debtline and just listed the other essential items associated with travel to work, small clothing allowance for kids. There really is not a lot left! The pay rise is dependant on my husbands promotion which is being talked of v positively but works for large national company and have been there before and not materialised. Problem is position becoming available in region - so although told suitable for promotion have to wait for job to come up! Have meeting with mortgage broker on Monday - don't want to shirk my responsibilities at all. Things will be v tight even with further advance/remortgage and will be 85% LTV so not squirreling money away on the sly because have none to do that. Am still meeting payments but will not be able to do so after this month![:-(]

[MelanieGiles]

Hi tre

No you do not have to repay your debts in full just because you have assets, my calculations were based upon you being able to pay contributions and release equity at the end of the arrangement.

And don't forget those investments - unlikely that creditors will agree to a full and final from equity knowing that you have shares which will be worth something in the future.

When you have had your meeting with your mortgage broker, can you post to let us know what he feels you could raise. My gut feeling is that you will not raise enough equity now to make a full and final offer acceptable, but let's see.

You must also be certain that you can repay the higher mortgage payments as well, otherwise your home will then be at risk whilst you gamble on your husband's receiving the promotion he has been promised.

Regards, Melanie Giles, Insolvency Practitioner for over 20 years.

For further details contact me at http://www.melaniegiles.com and view my IVA blog at: http://melaniegiles.blogs.iva.co.uk

[tre]

Hi Melanie

Thanks for your posting. Will let you know how it all goes on Monday. Am having serious discussions with partner about selling house. Got to be last resort! Both got paid this week. Have taken out cash to cover housekeeping on new rules and have begun to write down what I am spending it on. Have to get used to new spending routine - paying for everything with cash is a novelty, but so much more real. If only option is to sell house then obviously this will take some time so what do you suggest in the meantime?