Secured loan against property - please help!

munchkin39

Hi

We are in an IVA at present but due to change of circumstances we are struggling with it and are thinking bankruptcy may be our only option. My initial question is regarding a secured loan against our property. The house is worth £235K, and outstanding mortgage is £170 K. The charge against the property is £75/£80K, so therefore negative equity. Reading a previous post though, I've read that no allowance for paying a secured loan (second charge) is allowed for when making payments to OR is this correct? This could make the difference to them selling our home or not, because in theory there would be enough money to pay the mortgage lender, and probably most of our debts that went into the IVA, but then what would happen to the secured loan? We have two children 17 & 14, so we would need to have somewhere to live, and don't want to let go of the house after 8 years struggling to try to keep it. Any advice greatly appreciated!!

minic

Hi,

I'm afraid it is correct that when determining whether you have any available income to contribute towards an IPA, secured loan payments cannot be included in your outgoings (well that is what my OR told me when I went BR last year), maybe others who have been in the same position can confirm if their secured loan payments were allowed. Also they will only allow mortgage payments that are comparable with rent for a similar property in the area so you might be best seeing what rental is like in the area to make sure the OR doesn't consider your mortgage payments excessive.

You mention "we" in your post so I assume both you and your OH are both in an IVA. Are you both considering going bankrupt? If you're not could one of you cover the secured loan on your own? I don't know how much your secured loan is per month so I don't know if it would be feasible or not whether you could claw some back from other allowable costs such as groceries, clothing etc... to cover the secured loan payments over what the OR will allow.

M.

alastairq

I've read that no allowance for paying a secured loan (second charge) is allowed for

I'm pretty sure this is so. However, given that there is negative equity there isn't much the lender would want to do at this point in time...they'd be better off waiting for the property to increase in equity first.


If the property were sold, the mortgage [first charge] and secured lender [second charge] would get their bites at the cherry....with whatever is left going to you [to settle unsecured debts?}...but, since you state the equity is negative, if sold, then the shortfall would fall to you as unsecured debt.

Not a situation a secured lender wants to be in?

If you petitioned BR [ie, the IVA fails]....the OR would seek to recover any beneficial interest the BR individual has in a property.

The property is in negative equity, therefore the OR would have no interest [at that point].

The main issue for you would be to continue to pay the mortgage.

The secured loan would likely remain as a charge against the property.



If the house is later sold, but only with enough equity to meet the mortgage, the secured loan becomes unsecured...and since it would pre-date the BR, would fall into the BR.

fermi

http://www.insolvencydirect.bis.gov.uk/freedomofinformation/technical/TechnicalManual/Ch25-36/Chapter31/part7/part4/part_4.htm

31.7.89 Payments to additional secured creditors

(Amended April 2011)

Where there are additional secondary secured creditors the official receiver should take into account all payments to be made. Where there is no equity available to secondary charge holders, the official receiver should not include any payment to these creditors in an income payments calculation as there is no enforcement action that can be taken in respect of these debts as the asset is already fully charged, and as, in effect, the secondary charge holder is an unsecured creditor, any payment to it could be considered to contravene the provisions of section 285(3) of the Insolvency Act 1986.

alastairq

that's the quote I vainly tried to find yesterday....thank you, fermi

debt_doctor

Hi,

If I read correctly, it seems that the second lender holds most of its security. Therefore I would expect the repayments to be allowed up to the secured element (perhaps 80%). Account would still need to be taken if the overall housing costs are reasonable for such a property in the area.

DD

alastairq

mortgage is 170k...charge is 75-80k....guess the mortgage is the first charge then?

munchkin39

Thanks all who have responded, The £170 is for the mortgage lender, the other to secondary lender (First Plus actually), i was worried because after the mortgage company were paid there could be about £60K (roughly) left to pay first plus so maybe they would petition to make us sell so that they recovered most of their debt? The mortgage payment is £900 per month for 3 bedroom property, i believe it would cost at least this to rent in the area so i dont think that would be a problem. as regards minic's question, we would have to both go bankrupt i think as most debts are in joint names, and we are also both in the IVA, but this could possibly be something to look at. We are planing on making an appointment with the CAB to get them to look at everything & advise us as we really dont know which way to turn.