first question and it's taken a lot of courage!

[lucy.f]

My husband and I jointly owe £100K and have a surplus income after mortgage, secured loans etc. of approx. £450.00 per month. Our property is worth £190K but we owe £175K to mortgage company and a further £50K (approx.) to FirstPlus secured loans; meaning we have negative equity of £35K (approx.)

Do you think an IVA or bankruptcy is the answer? If banktuptcy; what would happen to our home as we have negative equity of £35K? We also have an endowment policy worth approx. £12K - if they took this would we have to change mortgage (tied in for another 4 years) to repayment as this would be approx. another £300K per month meaning we'd only be left with £150 per month if we had to change to repayment. This is first question and it's taken a lot of courage so please be gentle with us! Many thanks.

[MelanieGiles]

Hi lucy and welcome to the forum.

Your disposable income is a little low for an IVA, so if you are only able to pay £450 per month (you would need about £560 to provide the minimum dividend required by an IVA) the you ought to look at either a debt management programme, which would take many years to pay off or bankruptcy proceedings. Bankruptcy proceedings will cost approximately £1,000 to make your Court applications.

If you were prepared to surrender your endowment policy in an IVA, then you could propose one based upon the lower contribution. This would also be lost under the bankruptcy proceedings, and you would not need to change your mortgage. And if you were going to surrender the endowment policy, this would probably increase your disposable income as you would not be paying the monthly instalments to the policy any longer - making the IVA even more attractive for creditors.

Under bankruptcy proceedings, as there is no equity in your property, you could arrange for a family member to buy out your interest for a nominal sum (usually £1) but you may be required to make monthly contributions under an Income Payments Order for three years - based upon your disposable income.

Lots to think about, but let us know what you decide.

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

[lucy.f]

Hi Melanie and thanks for your reply.

We'd like to avoid bankruptcy as we feel we'd like to work hard to repay our debts.

We have filled in your online forms last nite and it appears we might have more disposable income than we thought for - hopefully enough for IVA. One question - we are willing to surrender our endowment policy therefore putting 12.5K in pot and also giving an extra £155 month towards repayments, but won't the mortgage company want us to change to repayment mortgage then and therefore mean our monthly mortgage repayments would increase?

Look forward to any advice available!

Thanks
Lucy

[tracy.h]

Hi Lucy,im not an iva expert just someone like yourself that has financail problems,id like to say well done,you have taken the first steps in sorting out your future,i really hope you get the help and solution that you require and can move on to becoming debt free.I am also just going through the motions of putting my mortgage on interest only from a repayment to give me enough surplus income to support a viable iva,my mortgage firm sent me a form asking why i wanted to do this and what will i have in place to cover mortgage,i said need extra income to sort out my financail situation,and further along the line i will organise some form of insurance policey,but obvously my main concern is here and now.In 5yrs when iva finishes then i will be 47,and will be debt free and have enough equity to pay of my iva and then put my mortgage back to repayment,i havnt heard back from them yet but maybe thats because they are my biggest creditor,so i wouldnt worry to much your main concern has to be sorting out your immediate problems and also protecting your family home if this is what you feel is important,obviously everyone has there own reasons and issues as to what they feel is the right way forward,all i would say is any of the options available all require serious consideration,im sure you will get more expert advice soon
Goodluck

[lucy.f]

Thanks so much for your reply and kind words. I'm so glad I found this forum! I've been on the edge reading posts for a short while and decided if everyone else could show such courage in sorting out their problems; then so could we! BTW, just re-read my post - sorry if it sounded like I was saying IVA was only way to pay back debts without stress and courage. I know that all stresses and avenues are different for everyone.

We are currently on an interest only mortgage with Northern Rock. No other debts to them. Our endowment policy is with AXA Sun Life and when I called them for a surrender value, they explained it couldn't be surrendered without the mortgage company's approval. Husband and I are still quite young (mid 30s) so feasible to surrender endowment policy, keep on going with interest only mortgage whilst IVA is in progress (with no vehicle for repayment) and then go onto repayment mortgage once IVA is finished or there is sufficient equity to buy out of IVA. Would the mortgage company let us do this though? I'd gladly put the £12.5K value into the pot and also add the endowment payments of £155/month into IVA if they would allow it!

Does anyone have any experiences of this?

[MelanieGiles]

Hi Lucy

No the mortgage company will not require you to switch to a repayment mortgage. There should be no problem in getting the mortgage company to agree to it being released, but if they don't - well then it is an asset which cannot be realised so it will not be taken into account within the IVA. You can suspend payments on it for the period of the IVA and thus get your disposable income up to an acceptable level.

You should definately revert to a repayment mortgage once your IVA has concluded, which as you are quite young will probably mean that the extra payments you can make will counter the interest only period for the IVA.

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

[lucy.f]

Thanks Melanie, this is certainly a help in perhaps going down the IVA route. If we can surrender the policy, we'd like to, but if not then we would definitely look to suspend payments to AXA during IVA period thus giving us more disposable income for IVA.

One other question. We have a static caravan which we bought under a HP agreement in 2003 over a 10 year period. It is a family transaction (including my parents) but as they are retired the loan agreement was in our name. The HP repayments are £268 per month of which my parents pay £200 per month and we pay £68 per month. They sort of live there from March - November and we pop down for weekends and the kids go and stay during holidays (saves on huge childcare fees during summer holidays!)

My question is, I know HP agreements can't be included in IVAs and usually when its a car, there is no problem. However, as its a caravan (could be classed as a luxury) would there be a problem even though parents have since the offset (and will continue to) pay almost all of monthly repayments? Also, next June 2008 we reach half way mark and in theory could hand back the caravan without any penalties. If they made us give back caravan now, would the debt turn from HP to unsecured loan therefore increasing the unsecured amount we owe and also increasing the amount we'd have to find in IVA? Even from a childcare position it saves us hundreds.

Sorry for more questions!

Lucy

[MelanieGiles]

Hi lucy

I think your parents will need to pay the extra £68 per month on the caravan HP. Is the caravan worth anything? If so, would your parents be able to buy out your share of the equity? If this is the case, then you can just carry on as you are. It is also possible to allocate some of this to childcare costs, as you appear to have ample justification. I will discuss this with you in greater depth once I have your case details.

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

[lucy.f]

Thanks Melanie

Unfortunately, like cars, static caravans depreciate in value immediately which no-one tells you. The HP agreement would still show £15K(ish) outstanding - you are not allowed to sell caravans privately and therefore have to sell back to the site and they'd give you approx. £6K (and sell on for about £17K!!) Therefore if we sold caravan to site, we'd be left with a minus figure of approx. 9K to HP company!

Having read other posts on sliding scale repayments within IVA, would it be feasible to allow us to continue making £68 per month contribution (perhaps offset against childcare provision)until June 2008 then hand back the keys? The HP agreement would then stand at Nil and we'd have another £68/month to add back into the pot from June 2008?

My parents do not have any savings they could use and would obviously be very upset given their own investment in this venture. We always said we'd try and see it to 5 year mark when keys could be returned so I'd feel so much better if this was possible rather than letting them down too as it's their life for several months of the year (and also my life saver during the school holidays!)

I realise you haven't seen our notes yet so I'm sorry for the questions. We've taken so long now to own up to our problem and all of a sudden, we've got the courage, energy and determination to get us out of debt asap and get on with living our lives! Again, sorry for impatience...

Lucy

[MelanieGiles]

Hi Lucy

I think that your suggestion is feasible, given the circumstances, and we will speak more about this in due course.

Don't worry about asking questions - that is what this forum is all about, and all of the other forum members benefit.

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

[jamesfalla]

Lucy

As Melanie says, cashing an endowment to add a lump sum to an IVA proposal is common. The only time that you would be prevented from doing this by the mortgage lender is if the endowment is linked to the mortgage. This is very rare nowerdays.

It is not unusual for someone to cash their endowment and remain on an interest only mortgage for the duration of the IVA. Then as Tracy says, you can revert back to a repayment mortgage once the IVA is finished. Remember, at that time you will have your extra disposable income to ramp up the mortgage payments

James Falla

Expert in IVA, Bankruptcy and informal Debt Management solutions for over 10 years.

For more information visit www.jamesfalla.com and visit my blog at: http://jamesfalla.blogs.iva.co.uk