Bankruptcy information for homeowners

What is the best option for you?

An IVA proposal should show your creditors that the amount that they will get back from the IVA is more than if you became bankrupt.

If you are a homeowner and became bankrupt then you would have to buy back the value of your share of the equity in the property, failing which the property could be sold for the benefit of your creditors.

For this reason it is vital that the IVA proposal takes in to consideration your equity in the property. There is now an agreed set of rules that:

  • Guarantees that you will never be forced to sell the property, provided you can maintain any mortgage repayments.
  • Protects the property from legal action by your unsecured creditors.
  • Requires you to try to release equity from your share of the property by remortgaging or refinancing any equity in the final year of the IVA but with some very important safeguards for you.

The safeguards that are there to protect you are:

  • You do not have to take a remortgage or refinance that exceeds more than 85% of your share of the property value, even if one is offered to you.
  • Any additional cost of the new mortgage must not exceed half of your monthly payment in to the IVA.
  • You are not required to extend the mortgage term beyond the existing mortgage term.
  • If you can show that you have been unsuccessful in remortgaging or refinancing then it is agreed that you will extend your IVA for a further 12 months as an alternative.

“I wasn’t sure if an IVA was an option but Johnson Geddes really helped”

Things to remember

  1. If you are in debt your unsecured creditors have the option of securing charging orders on your property meaning that they could apply for the property to be sold and be paid out of the proceeds of sale. An IVA prevents this from happening.
  2. If you are made bankrupt and have equity in the property your property could be sold and the equity paid to your creditors.
  3. If you can remortgage in the IVA you will be left with at least 15% of the value of your share of the property and any additional monthly mortgage cost that this creates is limited to 50% of your monthly disposable income. Your monthly payment in to the IVA would reduce by the same amount for the remainder of the IVA and so you would be no worse off.
  4. At present, even borrowers with unblemished credit records are struggling to remortgage or refinance and so it is probable that you would be unable to do so and that your IVA would be extended by 12 months. For many people this is a better outcome than remortgaging or refinancing.

“I found out quickly and easily whether an IVA could help me”

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