Equity in home, how does this correlate to iva

[flowerpot]

One of the IVA specialist I spoke to last week spooked me by saying that my repayments were a little high due to the equity in my home. The figure supplied to him as guestimates at this stage as my house in being valued this week.

At what stage do creditors want to bankrupt you instead of agreeing to an IVA option?

I'm wondering, when you have a little bit of equity in your home, probably around the same amount as you would repay creditors during an IVA, what is the general situation?

Do they prefer to get their money back quick and therefor consider bankruptcy as opposed to IVA?

What if you have a little bit more equity than you would repay during the term of the IVA? Would they let you keep/live in your home and put in clause for 85% remortgage in year 4-5?

And, what if you dont have quite as much equity as first thought so you actually would repay more through an IVA option? This being the case, it may not be possible to remortgage at the end of the term to 85%?

Appreciate any support on this issue!
flowerpot

[MelanieGiles]

I don't quite understand what this person was getting at Flowerpot! What does he mane that your repayments are too high - surely this was worked out on the basis of your income and expenditure?

Can you quote the level of your debts, the amount of equity in your property and the amount of your disposable income, so that we can advise further.

[ianmillington]

I'm wondering whether the person is inferring that, because Flowerpot might have as much equity as debt, and will therefore repay creditors in full, an IVA is not the right option? If that's the case I think Flowerpot will need to consider all options (DMP/Remortgage etc) but I think Bankruptcy would be like a sledgehammer to crack a nut and I can see few creditors nowadays wishing to take that route.

With more info, eg surplus income, level of debt, value of house and mortgage thereon, we can be a bit more specific I think.

Ian

[MelanieGiles]

I read it like this Ian which is why I asked for the information.

[flowerpot]

Valuation of property - £250K open market value with a view to accepting in region of £245k.

Forced sale (6weeks max supposedly) £239k with a view to accepting 1-2k less.

This leave us with £17k worst case equity, and £28k at best.

Total debt £60k. Mostly HSBC.

Disposable income £450 (possibly bit more)

Advised IVA repayments £550, (which we could make if we took no allowances or made cut backs on groceries)

But what I questioned was 40p/£1 dividend with a £60k debt = £400 per month over 60 months.

When I asked how they had calculated the repayments to £550 they said it was because I had to pay a higher dividend due to the equity in the house or else the creditors would want us bankrupted instead.

At £550 per month, I calculate this to be a 55p/£1 dividend, or else is the extra above the 40p/£1 the fees charged by the IP/Firm?

Many thanks for your help
flowerpot

[MelanieGiles]

Which firm gave you this advice?

An IVA should be based upon affordable payments - obviously subject to CCCS guidelines as followed by the majority of creditors, together with a contribution from the equity in your property.

I think you are being led down the garden path, and ought to take advice from alternative sources before making a decision. Your case looks as if it fits IVA criteria to me!

[ianmillington]

Frankly Flowerpot That's nonsense.

You need your income working out properly. You pay what you can afford. Any IVA with unsustainable payments is a recipe for disaster.

A remortgage in month 54 with a ceiling of 85% LTV and an increase in mortgage payments of no more than 50% of your mortgage contribution is now the order of the day.

I've not heard that the HSBC hurdle rate has officially gone and assuming it will apply in your case, you would need to achieve 40p in the £ after costs. Your £450 a month, after costs, would leave £21,350 and so to get past the "hurdle" you would only need to raise a nominal amount.

You will be well advised to get a second opinion.

Ian

[MelanieGiles]

Ian

In my recent experience, the HSBC hurdle rate is very much relaxing - and they are getting very favourable of six year proposals if client's are prepared to stretch that far.

[ianmillington]

That's good news.

BTW we both seem to be typing at the same time as each other. The first line was of course my thought on the advice given by the IP firm and not the immediately preceding post[:)]

Ian

[MelanieGiles]

I would not have thought anything different Ian!!! We are both chasing each other along today at a rate of knots - is that because we have no work to do???

[flowerpot]

Thank-you both for you posts.

Melanie, I did speak to your colleage Tina last week and I think she is passing my details onto you today. Tina ws worried about the affordability of an IVA as when the CCCS allowances are included, it makes an IVA unaffordable to us.

By our budget we can afford it, and we think/feel we have been generous when calcuating our budget as it is better than the pennies we live on at the moment while paying the minimums etc.

We consider our budget to be what it is, ' a budget'. We have been living carefully to meet the minimum repayments over the past 6 months and can continue to do so. We would not expect to be allowed items such as haridressing, dry cleaning , magazines and childrens pocket money while we make repayments.

Please do give me a call as soon as you can, I am at home until 2.30pm when I have to go on the school run!
flowerpot

[Adam Davies]

Hi
What strange advice that flowerpot has been given
Will be interested to know where it has come from
Regards

[MelanieGiles]

I will check as soon as those details come through. At the end of the day it is not down to me or your creditors to dictate that you should spend more on certain items, but I will need to be sure that you can afford to pay reasonable contributions, and we will certainly not be trying to engineer something just to hit a 40p in the £ hurdle rate.

We will not doubt speak soon.

[flowerpot]

Ian,

Thank-you for your posts.

So, with total debt of £60k, we would potentially need to raise £24k, by paying £450 a month would raise £21,350 once fees are paid, therefor a shortfall of £2650?

How would we propose to raise this? by making a further £45-50 a month repayment on the IVA, or is the £2650 raised from equity in month 46 ish? Or as Melanie suggests an IVA over 6 years?

HSBC accepting less than 40p/£1? How do we approach this to find out if its the case for us?

[flowerpot]

Grant Thornton