Will I lose my home in an IVA?

16 June2009

If your debts have become unmanageable, an IVA (Individual Voluntary Arrangement) could help you to avoid bankruptcy and repay as much of your debt as you can afford.

An IVA is a legally binding arrangement between you and your creditors. If the IVA is approved, you will agree to repay a percentage of your debt at an affordable rate - after which your remaining debt will be written off.

However, as with any debt solution, an IVA is not right for everyone. If you`re thinking about entering an IVA, you should speak to a debt adviser to discuss whether it is the right option for you.

IVA: will I lose my home?

An IVA is widely considered a preferable alternative to bankruptcy, as it avoids some of the downsides of bankruptcy. In particular - for homeowners - an IVA is extremely unlikely to force the sale of your home, while bankruptcy would mean you`re almost certain to lose your home.

However, the rules of an IVA tend to state that you must release equity in your home in the 54th month (half way through the final year) of your IVA so you can pay more into the IVA. This essentially involves borrowing more money against your home - money which you`ll have to pay back to your lender.

There are also some instances in which bankruptcy can be the better option. For example, if you do not own your own home - and therefore have no home to lose even if you do go bankrupt - there is less reason to avoid bankruptcy.

Plus, people tend to be discharged from bankruptcy in 1 year (although they may be required to keep on making payments for 3 years in total). Most IVAs last 5 years.

However, the impact on your credit history is likely to be similar with either bankruptcy or an IVA, as these are both recorded for six years.

Finally, an IVA requires a minimum level of disposable income - usually around 200 per month - in order for you to ensure you can make your monthly contributions to the IVA. If your income is unsteady, or if there is any other reason you may not be able to meet your repayments every month, then an IVA will not be suitable.

For more information on IVAs and a range of other debt solutions, contact one of our expert debt advisers on 0800 195 2911 or click here.

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