House / car in bankruptcy help

thechippy

Hi all.

A mate is considering an iva or br, but doesn’t know which way to go. He’s got most of the info together re an iva, but is unsure about br due to a couple of things, namely his car and house.

House

In joint names with his partner
Recent valuations 325 / 355 / 370k
Mortgage 280

There is a secured loan against the house for 50k, repayments 500 per month.
Unsecured debts are around 48k

Car

On finance
Current value if sold 14k
18k outstanding on finance
Balloon payment due in two years of 12k
Monthly payment £499

Could anyone kindly advise on what would likely happen to the car and house if he went br. An iva company has told him he’d keep both on an iva, but he does not know what would be the case in br.

Thanks

debtinfo

Hi, regarding the house it is difficult to say because of the wide range of valuations which give equity of £0 - £50K (his share £0-£25K). The OR will allow him to buy the equity back which is easy if in negative equity (he can buy it for £1 plus a bit in fees) but hard if the equity is worth £25K. I presume the IVA person told him he will have to release equity in year 4 from his property depending on its value at that time.

The Car - The OR wont take it because of having no equity but probably wouldnt allow the payments, in effect meaning that it would be taken back and the debt included in the bankruptcy. In the IVA how would he pay the balloon payment in 2 years. Would the IVA people allow the payment £500 is alot, you could rent a house for that

thechippy

Thanks,

Yep it's a bit confusing. I told him to ask the IVA company about the car and clarify that a bit more. We await the response.

How is the 50k secured loan treated in an IVA or BR ? I would have thought that as it's secured, then the house certainly has no equity? 280 + 50 = 330...

I think some of the valuations were ott from the EA's, just to get his business. I think 320 / 330 is more realistic!

debtinfo

The Loan will stay secured on the property until it is sold, he will need to make sure he can maintain the payments to it (this is for both the IVA and the bankruptcy). IF the value is £320K, this will mean negative equity and so will be relatively easy to protect in the bankruptcy. So before making a decision he need to be sure of the value.

thechippy

Thanks again.

Does the IVA and BR allow for him to take the secured monthly payment into account on the I & E ??

The secured loan is in both his and his partners name and I think they will be splitting up in the next few months. Does this have any effect?

Thanks for your time on this btw.....;)

Edit.
What's the best way to get a true and accurate valuation do you think?

debtinfo

They would both definitily make allowance for him to pay the secured loan.

As for a valuation, the best way is to get a proper survey done but obviously that cost money, perhaps tell the EA that it needs to be sold quickly and ask what you would get for a quick sale

fiveyearplan

I got 5 valuations done by estate agents and I told them I wanted a quick sale and also pointed out all the negative bits of the house. I sent the 3 lowest valuations to the OR, he averaged them out and that is what he based my beneficial interest on.

thechippy

Thanks a lot.

I'll be speaking to him tonight or tomorrow, so may be back with some more questions..;)

debt_doctor

Hi, I agree with all that has been said, but your friend MAY need to bear in mind the technical manual quote below (you haven't said how much the mortgage payments are, but they would be added to the £500pm for the secured loan);

31.7.36 Excessive mortgage payments (amended July 2009)
Mortgage payments may be extremely high where the home is heavily mortgaged and/or when arrears of mortgage payments are having to be met.
Where the bankrupt is making the entire mortgage payment against a property which is jointly mortgaged, and no contributions are being made by third parties, the official receiver should take this into account when assessing the bankrupt’s capacity to make payments under an IPA and "disallow" a fair share of the payments being made in respect of the joint liability.
If the official receiver’s income payments calculation taking in to account allowable reasonable expenditure, suggests that the bankrupt has sufficient surplus to collect under an IPA/IPO but the bankrupt wishes to continue making excessive payments and/or payments on behalf of third parties without receiving any contribution from them, the official receiver may consider whether to apply for an income payments order against the bankrupt rather than an IPA, following the judgment in Albert v Albert (A Bankrupt) (1996) BPIR 232 [note 19]. The official receiver must report the full facts to the court to allow the court to decide whether the bankrupt's claim that the expenditure is reasonable should be allowed. (See paragraphs 31.7.19 and 31.7.24 for further information). There is no case for allowing the pursuit of IPAs that will lead to the bankrupt becoming homeless.
Where suitable (not necessarily equivalent) rented accommodation is available at less than the cost of the mortgage payments, a view will need to be taken by the official receiver as to whether for the purpose of assessing the bankrupt's real disposable income an amount equivalent to the rented accommodation is allowed rather than the total mortgage repayment amount claimed by the bankrupt. A hard and fast rule cannot be set down as to what is excessive due to regional variations in the costs and availability of rented accommodation. Also, it is likely that a deposit will be required to be paid when "going in" to a rented property which may prevent this course of action. As a result of the requirement to pay a deposit when entering a rental contract, it may be necessary to delay the commencement of an income payments agreement to enable the bankrupt to accumulate the necessary funds, this action in the long term being beneficial to the estate by increasing the funds available to be paid later under the IPA. However, any delay in commencement of the IPA must take in to account the fact that the IPA has to be signed by the bankrupt and the official receiver/trustee prior to the date of discharge, as detailed at paragraph 31.7.2.

DD

thechippy

Thanks for all the advice guys.
He's decided to go br and seems happier than he's been for months.

Will keep you informed ....;)

skintflint103

Lets look at what the 50k was for, if it were just for the benefit of the debter and can be proved as such i.e. it was to set up a business that failed, then it can be argued that the debtor has used their apportionment of the equity already and the remaining part belongs to the other partner. this will all have to be proved though the apportionment of assetts is a difficult area but established in law