The recent announcement that the housing market is once again on the rise in England and Wales may be good news for the economy and for most homeowners, but may be less welcome for people using IVAs.
An IVA, or Individual Voluntary Agreement, is a legally binding agreement used by people as an alternative to going bankrupt, and is agreed between them and their creditors.
Under an IVA, it is possible for individuals, such as business owners, to put their home into the agreement.
This works by the creditors agreeing to a monthly repayment plan and a share in the equity that would be released in the final year of the IVA, so the homeowner could re-mortgage, pay off some debt and then still have the house at the end of the IVA, when all outstanding debt is written off.
However, after the financial crisis and the lack of desire on the part of mortgage lenders to dole out second mortgages, IVAs often had to be extended for a year in lieu of equity, which was actually quite a good deal for the debtor.
If the sale of the property is put into the IVA and, for any reason, it does not sell or a loan agreed for remortgage, the supervisor has the power to fail the IVA and make the debtor bankrupt, resulting in the loss of the property if there is any equity in it.
When the IVA is not failed, if the repayment agreement is acceptable to the creditors and the debtor cannot re-mortgage, only a fraction of the debt may be repaid and, more importantly, the debtor keeps their house.
Now, with prices rising again and mortgage lenders seemingly much more willing to lend, debtors could find that they can re-mortgage and end up with less equity in their home plus larger mortgage repayments.
Also, many insolvency practitioners are now introducing a secured loan option into their contracts in place of re-mortgaging. Unlike re-mortgaging, where finance is obtained to pay off the existing mortgage, a secured loan forms an additional charge on the property and can result in the debtor being left with a more expensive debt.
At Palmers, we specialise in all aspects of debt and insolvency, and can provide expert guidance on when an IVA is the best way forward.
For more information, please visit our website or contact one of our fee earners.