IVA information for a newbie

[robert_payne123]

Hi, My name is Rob.

I am currently in debt to the tune of £32,000, which is mainly a Credit card (over it's limit) three overdrafts and a sizeable unsecured personal loan.

I am trying to get information on the best way out of this mess.

I have a flat which i paid about £92k for back in August 2007 and a mortgage for about £86.5k (not including early repayment charge etc).

I am interested in an IVA, but I am worried that all that will happen is that the debt will be taken out of any equity i have in the house in year 4. This would effectivley be the same as taking a loan on the house to cover some of the debts, and means that I can't realistically move until I managed to save a large amount of cash.

Am I correct in thinking that my creditors will want the equity? If so how is this any different to paying a reduced balance on the creditors amounts and then a top up charge by way of the extra payments due on the higher mortgage. Also when I come to change mortgage when my current deal ends in July 2008, I am not going to get a very good deal?!?

I need some advice and help with the realistic pros and cons from people who have had real experiance, rather than people trying to make money selling me things.

Thanks and sorry to sound like a sulker!

Cheers again

Rob

[size5]

As ever, a lot depends on the spread of the debt, personal circumstances etc so an answer can't be given just on the details you have listed but to give you an idea the property would probably be revalued in or at the end of the 4th year and you would be asked to release any equity there at an LTV of beteween 75% to 85%.
e.g, flat worth 110k, mortgage outstanding 85k, 85% ltv is 93.5k so equity release circa 8.5k on top of the 4 years IVA contributions, plus a reduced 5th year contribution to take account of increased mortgage costs.
If your circumstances change for the better in the meantime then you would be expected to reflect that in increased contributions also, but an IVA is a tool to allow you to stop borrowing and pay as much as is realistic back to your creditors over a set period, usually 5 years, whilst protecting your assets also.

Hope this helps.

[pbeck]

House prices are actually falling at the moment and you have next to no equity in your flat. People are talking about a repeat of the early 90s where in 1995 house prices were still 30% lower than they were in 1989. Maybe it won't get that bad as there was a serious recession in the early 90s, but it's still likely that there will be a long period of consolidation in the housing market.

As it stands your flat would have to increase in value to over £100K during the IVA term before a remortgage in the final year would even need to be thought about.

If you do an IVA then you must tell the IP that your mortgage payments will increase in July 2008, your IVA budget would be tailored to take this into account so that in July 2008 your payments would be reduced to cover the mortgage increase, but this must go into the IVA from the outset, creditors get annoyed if people put forward IVAs, then claim later that they can't make the payments when they knew beforehand that their mortgage would go up after the special offer ended.

[robert_payne123]

Thank you for the advice. That makes things a little clearer.

I have a reasonable income (after tax and NI) of £1,830, but currently my expenses (without including the cost of the overdrafts, bounced Direct debits, and loan payments) is around £1350 or so leaving around £480 to make repayments with.

Is there anything else that I should be considering or is an IVA likely to help?

Thanks

Rob

[robert_payne123]

Also another thought. Will an IVA affect my right to practice as a member of the Associations of Tax Technitions? Which I need to be a member of for the purposes of my job?

Thanks

Rob

[pbeck]

If you were to repay your debts at the rate of £480 per month, then you could clear them all in 5 1/2 years under a debt management plan (DMP), providing creditors stopped interest and the DMP company didn't charge you any fees). I suggest CCCS or Payplan as they get paid by creditors for running DMPs.

Creditors are likely to prefer this option as it will involve them getting full payment, and it will only take a little longer than an IVA, so you should look at this first, and only come back to the IVA option if the DMP is rejected or the creditors won't stop charging interest.

[pbeck]

Sorry, I forgot to consider the increased mortgage payments you were talking about before. How much would that reduce what you could afford to pay per month to ?

[ianmillington]

I recommend you check your members handbook to see what the specific provisions are.

I have briefly looked at your associations website and can't find anything in the 2006 rules.

[robert_payne123]

Thank you very much for your advice Mr Beck. I will approach CCCS. One question though. This is as I understand it not a legally binding agreement? Thus the creditors could say they accept and then just turn around and charge interest etc and I don't have a leg to stand on, is that correct?

Also my main bank account is included in the debt (overdraft) what happens with this.

Will this affect my credit rating even further, as it is bad at the moment anyway, and as I said I want to get a different mortgage in July 2008. I was hopeing that this would mean a lower outgoing.

Is it likley to be worth taking some of the equity out of the house? Or is this just extending the amount of time it will take to payback the momeny?

Lastly how comes CCCS is free, and how reputable are they?

Thanks again for all the support and quick replies. I am very grateful.

Rob

[robert_payne123]

I recommend you check your members handbook to see what the specific provisions are.

I have briefly looked at your associations website and can't find anything in the 2006 rules.

Thank you very much. I will do that shortly. Or I might phone them. Thanks for looking.

Robert

[size5]

It isn't legally binding and the creditors MAY still charge you interest, however I find that in practice, and to be fair to the creditors who, quite rightly sometimes, get a lot of stick, if you stick to your half of the bargain they will freeze or significantly interest in the vast majority of cases.
You would be well advised to change banks to protect your income.
You have no real equity so I wouldn't think about that at the moment if I were you.
The CCCS incur costs just as much as anyone else, but the creditors make voluntary contributions to cover those costs and, yes, they are reputable.

[size5]

Sorry, should read significantly REDUCE interest.

D'oh!!

[robert_payne123]

Cheers Size5, advice and clarification much appreciated. I assume that you agree with Mr Beck that this is probably the best way forward rather than an IVA itself?

Thanks

Rob

[pbeck]

Yes, OK, go for a DMP with CCCS, see if they are successful at getting interest suspended or at least substantially reduced, if not, then see how long it would take you to clear your debt with interest or partial interest remaining, if a DMP would take over 8 years, then that's too long, go for an IVA.

You'll have difficult getting a better mortgage in July 2008 with your credit status as it is, I think your only option will be to go with whatever your current mortgage provider's default rate is after the deal ends.

[size5]

Rob,
The rule of thumb I apply to every case I look at is "what would I do in this situation?"

Yes, I agree with Phillip.