How does an IVA affect my mortgage?

Do you have a significant amount of unsecured debt that you can't afford to repay in full in a reasonable amount of time?

If you're in this situation, an IVA (Individual Voluntary Arrangement) could be an ideal approach.

An IVA is a formal insolvency solution, designed to lower your monthly repayments to an affordable level - and on successful completion, your lenders will write off whatever portion of the included debt you haven't repaid.

Borrowers who own their own home will also have to consider the impact an IVA could have on their mortgage.

Keep reading to find out more.

What is an IVA?

An Individual Voluntary Arrangement (IVA) is a legally binding insolvency solution. An IVA could be agreed with your unsecured lenders if you can't afford to pay back a sizeable amount of unsecured debt in a realistic timeframe.

If you enter an IVA, you will:

•  Make a single payment every month that you should realistically be able to afford, as it'll be calculated to leave room for all your essentials (e.g. rent/mortgage, food and bills)

•  Stop any further action from your unsecured lenders

•  Have any included debt you can't afford to repay written off once your IVA successfully finishes.

It's important to note that although an IVA could be the best approach for you, it will damage your credit rating for six years from the day it starts.

How could I set up an IVA?

An IVA can only be set up with the help of a qualified Insolvency Practitioner (IP) - a professional with the expertise and qualifications to act in formal insolvency cases.

Here at Freeman Jones, we could help you set up an IVA if it's the most suitable way for you to get on top of your problem debts.

A Freeman Jones Insolvency Practitioner can help you draw up an IVA proposal, a document showing your unsecured lenders how much you can afford to repay, how much they can each expect to receive, and how they expect the IVA to work in general.

Your IP will then send the proposal to your unsecured lenders, who will 'vote' on whether or not to accept your IVA.

As long as three quarters or more of your lenders agree (by debt value), your IVA will go ahead - giving you a clear path to becoming free of your unsecured debts.

How will an IVA affect your mortgage?

An IVA is designed to help people deal with unsecured debts they've lost control of - not secured debts.

However, entering an IVA should also help you keep on top of any secured debts you have - e.g. your mortgage - as the payments you make (usually for 5 years) will be calculated to fit around all of your financial priorities.

Homeowners should also note that they may have to release some of the equity in their home so they can repay their lenders more of what they owe - and that their IVA's impact on their credit rating can make remortgaging more difficult / expensive.

If you like, we could call you back for free and tell you more.

By Daniel Culpan.