How an IVA impacts our home?
Summary: IVA - effect on your home - This article explains how an IVA (Individual Voluntary Arrangement) impacts our homes with the safeguards and dangers involved.
IVA advantage over bankruptcy
Perhaps the biggest advantage to an IVA over bankruptcy is the control the debtor may have over their home. In bankruptcy, the debtor's assets will vest in the Trustee (some assets are excluded, notably those used as tools of trade, ordinary household contents). This will usually include equity in their property and the trustee may force its sale. An IVA proposal may exclude the property altogether, or propose a re-mortgage or offer income based contributions for a longer period in lieu of the debtor's equitable interest in the property. The supervisor may register a restriction on the property to ensure that his or her consent is required before the property is, for example, sold or re-mortgaged.
In order to successfully propose an IVA, the debtor will need to satisfy the Insolvency Practitioner that they are in fact insolvent. If the debtor is a homeowner and it is deemed there is sufficient equity in the property to pay off all unsecured debts then an IVA is unlikely to be accepted. Creditors will feel that the debtor has the means to repay the debt even if it means selling the property. Of course house valuations can vary significantly and it is worthwhile to get more than one estate agent's valuation to see which is the lowest.
Insolvent - but still too much equity
The fact that a debtor may not have enough equity to clear all unsecured debt may still not be enough to convince creditors that an IVA is in their best interests. For example, if someone had £100,000 of unsecured debt and owned a property with £75000 of equity, the suggestion is they are insolvent (their debt is greater than their asset in the house). But if their available income for debt repayment was £200/mth, creditors are likely to feel that bankruptcy would yield them a higher return than an IVA, and they would reject the IVA.
Once an IVA has been accepted, creditors are not allowed to demand the sale of the house. As long as the mortgage and the terms of the IVA are met, then the house is 100% safe. Living with debt or any other debt solution cannot provide such a guarantee.
If we are homeowners then our debt can affect our property. Although the debt may be unsecured, creditors have the power to go to court to obtain a County Court Judgment, and from there can apply for a charging order on the property. Some creditors may prefer to file for bankruptcy placing our property at serious risk. It makes sense therefore to seek professional advice on debt issues, not least because our home is involved.