As the debate over the suitability of Individual Voluntary Arrangements (IVAs) as an appropriate debt solution rages on, people with serious debt problems are finding themselves being torn over the mixed messages within the IVA advice they are receiving.
This article hopes to help people who have equity in their property begin to understand how their equity will come into play - before, during, and after an Individual Voluntary Arrangement (IVA), especially in cases where an Individual Voluntary Arrangement (IVA) is the debt solution they use to become debt free.
To be able to understand how creditors view an Individual Voluntary Arrangement (IVA) proposal you must try to approach the situation from their stand point.
All creditors have the opinion that a debtor should repay as much of their debt as possible. This means that, as far as they are concerned, all the assets of a debtor are subject to scrutiny.
In a bankruptcy, all of a person’s assets, including equity in a home, will be made available to their creditors.
Because an Individual Voluntary Arrangement (IVA) needs to be a stronger financial offer to creditors than bankruptcy, it is logical that creditors would expect to see a commitment from the debtor to release some of the equity held in their house as part of an Individual Voluntary Arrangement (IVA) proposal.
This would normally be via a re-mortgage.
So how can you establish how much equity you will be able or expected to release?
It is true that someone who is in an Individual Voluntary Arrangement (IVA) will not be able to release as much equity in a re-mortgage as someone who has a clean credit history, and our experience tells us that normally a person in an Individual Voluntary Arrangement (IVA) could expect to raise only 75% - 80% of the equity within their home.
Whatever the level of equity, it would usually be expected to be released at the end of the fourth year of an IVA, and would generally bring the Individual Voluntary Arrangement (IVA) to a early close. If the amount of equity available for release was insignificant, or the extra borrowings made the cost of the re-mortgage unaffordable, then the creditors would consider continuing with the Individual Voluntary Arrangement (IVA) in the normal way until the end of the fifth year. At which time there would be a reassessment of how the Individual Voluntary Arrangement (IVA) will be concluded. It maybe agreed all round to extend the term of the IVA for a few months in lieu of any equity, which would save the debtor the cost of re-mortgaging.
If you would like to read our special guide, which explains all about the equity issues within an Individual Voluntary Arrangement (IVA), click the link to download.
How will an IVA Affect the equity in my house?
For more information on everything to do with Individual Voluntary Arrangements (IVAs) call our specialist advisers on:
0800 088 7503
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