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House and IVA

Your House and an IVA

Your house is protected by an IVA. However as a home owner there are various implications that you need to be aware of.

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How is your House protected by an IVA?

If you do not pay unsecured debt the creditors can try and force payment by taking legal action against you. This normally starts with an application for a County Court Judgment (CCJ).

After a CCJ has been issued if payment is still not made further action can be taken. If you own a house or other property this will normally involve the creditor trying to secure their debt against it. They can do this by applying for a Charging Order.

An IVA will protect your property from this action. Once the Arrangement is in place the included creditors cannot start further legal action against you or your house.

If one of your creditors already has an Interim Charge against your house the Court is likely to grant the full Charge. This will be the case even if an IVA is approved in the mean time.

Is your Mortgage written off?

Mortgage and other secured debt is not included or written off in an IVA. You must continue to make your regular payments towards this debt during the Arrangement.

A budget will be included in your living expenses to cover your mortgage payments. As such you should always have sufficient cash available each month to pay these.

If you are in arrears with your mortgage an amount can be included in your expenses budget towards repaying these each month. You will need to agree the payments with the mortgage lender yourself.

The only time a mortgage or other secured debt can be included in an IVA is if your house has been repossessed. Any shortfall debt is then be definition unsecured. It could then be written off in the arrangement.

Will you have to release Home Equity?

During the 5th year of your IVA you will have to try and release equity from your house. This is often referred to as the “Equity Release Clause”. The affect of the clause depends on the amount of equity in your property at the time.

For the purposes of an IVA your equity is calculated based on 85% of the valuation of the house. If based on this calculation there is more than £5000 of equity you must try to release some of this either by remortgaging or with a secured loan.

The mount you are paying towards any debt secured against your property can never increase by more than 50% of your IVA payment. As such any amount you are able to release will normally be relatively small.

If cannot release equity because no suitable remortgage or secured loan is available then the requirement to do so is ignored. Instead you will have to continue paying your IVA for an additional 12 months.

If the amount of equity in your property during the 5th year of your IVA is less than £5000 the requirement to release it is ignored. The Arrangement will be completed as normal at the end of the 5th year.

What happens to a jointly owned property?

A house that you own in joint names with someone else is still affected by an IVA. You will still be required to try and release equity from the property. However only your share of any equity can be considered.

If you own 50% of the house then you will only be required to release up to 50% of any equity that exists in the property.

Where there is considerable joint equity it might be possible to use this to settle your IVA early. If the other owner is prepared to release some of their equity it could be used to make a full and final offer.

All the equity in a jointly owned house could be considered if you and the other joint owner both start an IVA. You would then both be required to release your respective shares to of available equity.

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