IVA Articles
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Equity IVAs
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 advice they are receiving.
This article hopes to help people who have equity in their property come to understand how their equity will be effected before, during, and after an Individual Voluntary Arrangement (IVA), 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.
Creditors all 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, a person's assets (including equity in a home) are made available to the creditors. Because an Individual Voluntary Arrangement (IVA) needs to be a stronger offer to creditors than bankruptcy, it is understandable that in an Individual Voluntary Arrangement (IVA) proposal creditors would expect to see an effort to release any equity that is available.
This would normally be via a re-mortgage.
However, it is also 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.
This amount equity would usually be expected to be raised at the end of the fourth year, 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 the conclusion of the Individual Voluntary Arrangement (IVA) and may even not involve the equity at all.
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.
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