A question we are regularly asked when talking to clients about an IVA is What is Equity?
Equity is the difference between the value of a property and any secured borrowings set against it.
If you are considering which debt solutions are available to you, and you have a property, it is extremely important that you to establish what would happen to your equity in each different debt solution scenario.
To assist you, we have some simple illustrations below, giving you an insight into the way you could expect your equity to be calculated, and what you could expect to happen to that equity, firstly in a bankruptcy, and secondly in an IVA.
To calculate how much equity there is within a property, use the examples below as a guide.
First example:
Equity Release In A Bankruptcy.
Property market value =£100,000.00
Minus The Borrowings against the property = £52,000.00
Gives a Total Equity Of= £48,000.00
The total equity is the amount of money remaining after the borrowings against the property have been paid off. The borrowings would typically be your outstanding mortgage and any secured home loans.
In a bankruptcy, you would be expected to surrender your property to the Official Receiver. The Official Receiver would then sell the property on behalf of your creditors and use the remaining money to pay out a dividend to your unsecured creditors.
If there was any money still remaining from the sale of the property after the mortgage had been settled, all the unsecured creditors had been paid back and the bankruptcy costs had been deducted, this would belong to you.
Second example:
Equity Release In An IVA.
In an IVA you would only be required to release what equity was available to you via a re-mortgage.
To calculate the element of releasable equity via a re-mortgage we work on a typical raisable value of 75% of the market value of the property.
Property market value = £100,000.00
Multiplied by 75% = £75,000.00
Minus The Borrowings against the property = £52,000.00
Total Releasable Equity in an IVA = £23,000.00
As can be seen from this simple illustration, how you use the equity in your property is extremely important.
In the IVA example, the money raised via a re-mortgage would leave the debtor with a substantial amount of equity still in his property, yet debt free after the IVA had completed, whereas a bankruptcy example would take all the available equity, pay it to creditors and leave the debtor without a home.
So if you are experiencing financial problems, and you think that the equity in your home may be part of the solution, call …
0800 088 7503
One of our specialist IVA advisers is waiting to help you.
Or you can download any of our free IVA guides which have been specially designed to help you solve your debt problems. Just take the link on the left side of this page.