I will lose my house IVA Myth
Summary: I will lose my house - This article seeks to reassure homeowners that an IVA (Individual Voluntary Arrangement) need not result in the loss of their home.
Equity is an asset
For homeowners, a frequent and necessary question when considering an IVA is "what will happen to my property"? In an IVA proposal, assets such as property or car will have to be declared. Indeed the land registry will be consulted as a matter of course in an IVA. The main purpose is to see how much equity the debtor has in a property. Therefore a current valuation is needed and a copy of a mortgage statement plus any other evidence of debts connected to the property (Secured loans, charging orders).
When my house means an IVA is inappropriate
If the equity greatly exceeds the total unsecured debt, the client is not insolvent and the IVA is unlikely to succeed. Creditors will take the view that the debtor can afford to repay all their debt by releasing the equity through remortgaging or by selling the property. Another potential problem is where a debtor is clearly paying a mortgage that is beyond their means. If for example, someone was paying 75% of their income on an expensive mortgage when they could reasonably rent for much less, then creditors are unlikely to agree to an IVA.
Releasing equity at the end of the IVA
Very often homeowners simply don't have the necessary equity in their property to repay their debt, and therefore an IVA is certainly a potential debt solution (do note - that only unsecured debts can be included as a debt in an IVA). Once an IVA has been agreed the debtor's house is absolutely safe (as long as the mortgage and IVA are paid). No one can force a sale of the property or repossess it in order to release the equity. However towards the end of an IVA, and assuming there is still outstanding debts still, before creditors write off potentially a large amount of the debt, they will want to find out if any equity in the property can be released through remortgaging. It may be that the mortgage lender will simply refuse - not enough equity, poor credit rating etc, but the question will need to be asked.
More than one property
Debtors are still able to propose an IVA whilst owning more than one property. However details of each property will be required with information about value, mortgage owing, rent received required. The IVA must be felt to benefit the creditors, so the possibility of the sale of an additional property or properties exists. Further advice would be required by an Insolvency Practitioner or debt advisor.
The reality is that an IVA may actually protect a property as once in an IVA, no further action against it can be taken by a creditor.