IVA - Right decision???

Yummy-mummy

Hi all. I've been in a joint DMP with OH since 2008. Just had our annual review and due to a change in our financial circumstances we are looking at approximately another 23 years before we are debt free and that is only if our creditors continue to freeze interest and charges.

Payplan (who our DMP is with) have suggested we enter into an IVA. Back in 2008 when we first started our debt free journey an IVA was suggested then as being an option but we decided against it as I was worried about it failing due to changes in our circumstances. As it turns out, if we'd gone ahead with it then, we would probably be debt free now but hey ho!

Anyway, just wondering if anyone out there has been in this situation transferring from a DMP to an IVA and if they can offer any insight to what lies ahead.

Thanks x

sourcrates

Mine has just ended, it took six years, if you are a homeowner, you are expected to re-mortgage in year 5 in order to release more cash for the creditors, I was not so mine was extended a further year, to be honest, knowing what I know now, I would have gone Bankrupt, as it would all be over in a year, I had no assets though, if you have a house, expensive car, other assets, then IVA should be your route, cant stay on DMP for 23 years, just not practical, if no assets, then go Bankrupt, theres a chance you may have to pay into it, but only 3 years max normally, so over long before IVA would be, and DMP forget that, as I said, depends on what assets you have.

Yummy-mummy

sourcrates wrote: »

Mine has just ended, it took six years, if you are a homeowner, you are expected to re-mortgage in year 5 in order to release more cash for the creditors, I was not so mine was extended a further year, to be honest, knowing what I know now, I would have gone Bankrupt, as it would all be over in a year, I had no assets though, if you have a house, expensive car, other assets, then IVA should be your route, cant stay on DMP for 23 years, just not practical, if no assets, then go Bankrupt, theres a chance you may have to pay into it, but only 3 years max normally, so over long before IVA would be, and DMP forget that, as I said, depends on what assets you have.

We do have a house and car each but they aren't worth a great deal. Wanted to avoid bankruptcy purely to retain our home.

Depth_Charge

Yummy-mummy wrote: »

We do have a house and car each but they aren't worth a great deal. Wanted to avoid bankruptcy purely to retain our home.

Hi

The 2014 IVA protocol now includes secured loans as well as re-mortgage (check out the link below)

http://www.insolvencydirect.bis.gov.uk/insolvencyprofessionandlegislation/policychange/foum2007/plenarymeeting.htm

If your IVA fails for some reason then assets can still be at risk if you are made bankrupt

Make sure you look into this very carefully before making any final decisions

At the end of the day Payplan are a profit making business, they are not a charity.

PS - You don't always lose the house in bankruptcy, it would depend on your overall situation - equity etc

Could you put up your statement of affairs?

Genuine Best Wishes

DC

Yummy-mummy

Thanks for the reply DC. I did query the new protocol with Payplan and this is the reply I received:

“With regard to your queries, when it gets to the final 6 months of your plan, you are asked to value your property in order to see where you stand regarding equity. If there is under 15% equity in your property at the time, your IVA will complete after 5 years and your property will not be involved at all.

If there is more than 15% equity in the property at this time, you would be asked to seek a way to release a proportion of equity to your creditors. Usually, this is via a remortgage. If a remortgage is not a possibility, you may be asked to see if there are any other ways in which to release equity such as a secured loan. However, if these options are not feasible to you – ie if they are not realistically affordable to you, if it would take you past your current mortgage end date or if you get turned down for these, your IVA can extend for 1 additional year, taking your plan to a total of 6 years.

In this equity clause, you are only asked to attempt to release equity with 2 lenders – so you could apply for a remortgage with 2 different lenders, and if you are turned down for both your IVA would simply extend for that additional year.

The likelihood is that with your credit rating at the time and the fact that you have a small surplus income after your basic living expenses, it is highly unlikely that any of these options to release equity will be successful. It is more likely that you will pay for 6 years instead of 5.”


I've gone through a full income & expenditure with them today and our surplus income is £147 and we still owe approx £41,500. :eek:

longtermplanner

The problem with the new secured loan option that has come in with the 2014 Protocol is that your generation of IVAers (ie those stating one this year) will be the guinea pigs for it. We won't know until 2018/9 how it pans out in practice.

There are some horror stories around at the moment of people who have agreed to clauses similar to the 2014 protocol being pressured to take secured loans of over 20% for 7-15 years. They are understandably very upset, they thought an IVA would clear their debts in 5 or 6 years, not land them with a horrific secured loan at the end.

I suggest you google IVA 2014 Protocol and read as much up about it as you can. I have to say that if I had a house I would not be prepared to take this risk.

The other major problem for IVAs this year is that mortgage rates are set to rise. At the moment it is thought that rates may go up a couple of persent gradually over the next two years. What would a rise of 2% do to your mortgage costs? When you are in an IVA, you will not be able to remortgage to get a new fixed fate. IVAs are not flexible contracts, if your mortgage costs go up you cannot assume that your IVA payments can be adjusted. If the problems occur towards the end of the IVA, there can be ways round it (see this article http://debtcamel.co.uk/cant-afford-iva-payments/) but early onit is more likely your IVA will fail.

IVA failure rates have been falling. At one point they were 1 in 3. Now they are down to "only" 1 in 4. I think that is largely because of the very low mortgage rates at present and as soon as interest rates go up, IVAs are again going to be failing more often.

So that is the downside of an IVA. You really should look seriously at the alternatives. As DC says, you may not lose your house if you go bankrupt. Or it may be better to face up to having to move.

Depth_Charge

longtermplanner wrote: »

The problem with the new secured loan option that has come in with the 2014 Protocol is that your generation of IVAers (ie those stating one this year) will be the guinea pigs for it. We won't know until 2018/9 how it pans out in practice.

There are some horror stories around at the moment of people who have agreed to clauses similar to the 2014 protocol being pressured to take secured loans of over 20% for 7-15 years. They are understandably very upset, they thought an IVA would clear their debts in 5 or 6 years, not land them with a horrific secured loan at the end.

I suggest you google IVA 2014 Protocol and read as much up about it as you can. I have to say that if I had a house I would not be prepared to take this risk.

The other major problem for IVAs this year is that mortgage rates are set to rise. At the moment it is thought that rates may go up a couple of persent gradually over the next two years. What would a rise of 2% do to your mortgage costs? When you are in an IVA, you will not be able to remortgage to get a new fixed fate. IVAs are not flexible contracts, if your mortgage costs go up you cannot assume that your IVA payments can be adjusted. If the problems occur towards the end of the IVA, there can be ways round it (see this article http://debtcamel.co.uk/cant-afford-iva-payments/) but early onit is more likely your IVA will fail.

IVA failure rates have been falling. At one point they were 1 in 3. Now they are down to "only" 1 in 4. I think that is largely because of the very low mortgage rates at present and as soon as interest rates go up, IVAs are again going to be failing more often.

So that is the downside of an IVA. You really should look seriously at the alternatives. As DC says, you may not lose your house if you go bankrupt. Or it may be better to face up to having to move.

Hi longtermplanner

This is an excellent post

The stats on failing IVAs are interesting and I generally agree

The point I would add however is that it would be interesting to see the stats on how many IVAs are in default or extended for one reason or another.

Currently where I work we are seeing problems with IVAs every week again with a number now going bankrupt - we even have clients telling us that their IVA provider has advised them to come to us when the IVA is still live! - incredible really

The secured loan issue is a disgrace in some parts in my opinion and there does not seem to have been any real official comment from the bodies & spokespersons that represent the IVA Industry (I stand corrected on this if someone can find the genuine evidence)

Just my take again

DC

UpToMyNeckInIt

Yummy-mummy,

Some excellent advice here already on some of the issues to consider, and it sounds like you are taking the time to read all the t's & c's very carefully, which IS A MUST.

You are already in a DMP, so at least there is no need for you to be tempted to rush into a decision.

Going BR was never an option for me, so I do not know for sure, but it is the riskiest option if you want to remain a homeowner. I believe that the issue of being required to sell you home can be assessed again 3-Years down the line. My guess is that if by then: You have enough equity to sell-up; repay your debts; and be left with enough for a deposit for a suitable rental property, you will be required to sell-up.

Not a chance worth taking in a rising property market IMO.

Saying that, please consider the ramifications before entering an IVA - speak to a few providers to see if it is the right option for you.

That 'Debt Camel' site is well worth a look, albeit a little 'anti-iva' in some of its wording.

You will have to work out your income and expenditure. Whatever is left over is your IVA payment. My only concern in your case is that you apparently have a relatively small disposable income, and you will have to consider whether you can continue to afford a viable IVA in the event of a mortgage rate increase for example.

Regarding what is deemed 'reasonable' expenditure: All IPs that I’ve come across make reference to the Stepchange Budget Guidelines Report here.

https://docs.google.com/file/d/0B7LabJy69BP1M0gxeHQ1SDFiN1E/edit?pli=1

(Sorry, have not yet been able to get hold of the latest version that came out in October 2013, but the figures only differ by a couple of quid here and there).

It is well worth a read, as it covers every form of expenditure, right the way down to allowances for hairdressing, kid's school dinners, meals at work, even hobbies etc.

If you are careful to correctly record your income and expenditure, your IVA payment should be set at quite an affordable level.

If you still feel the IVA is right for you, Google 'Insolvency Practitioner Reviews' - 3rd or 4th result down takes you to a nice little review site. Speak to 2-3 well-reviewed companies, and choose one that feels right for you. This is important, as you will not be able to change providers once your IVA is up and running.

BE AWARE: some private firms will ‘over-sell’ IVA’s to people for whom it may not be the best solution.

Definitely seek advice from the CAB and the charity organisations, but don’t be afraid to approach a private firm if they don't think you are eligible for an IVA, but you still think it may suit you.

I have a cynical view of the so-called 'independent' charities (Stepchange, National Debtline for example) - they are all sponsored/funded by the banks/credit companies, and I can't help feeling that was who’s interests they were looking out for when they advised me. They tried pushing me towards a debt management plan (would have taken 15-20 years to pay off my debt + loads of interest - you are familiar with that one already I see).

Also, Stepchange (and some CAB offices), on the apparently rare occasion that they suggest an IVA, will likely refer your IVA to the 'private sector' (Grant Thornton) anyway. (Just google 'Grant Thornton Complaints' or have a look at some of the other forum posts here to see why that may not be in your best interests). They are very competent etc. I'm sure (most of the problems seem to be associated with delays in closing the IVA, associated with reclaiming PPI). But with only a handful of IP's to cover their 20,000+ customer portfolio (nearly half the IVA market basically), one-to-one customer service is probably not their strong suit.

Equity release: Yes there are a few 'horror stories' floating around - especially if you are a 'Debt-Free Direct' customer (DFD are best avoided therefore IMO).

To be fair, in the accounts I have read about, the customer usually has a high IVA repayment (£500-£700pcm for example), and have a huge amount of equity (40-70% in some cases). So, they are deemed to be able to afford £250-£350pcm (half of their existing IVA repayment), on a loan/remortgage.

Disappointing for those customers that have not successfully fought this off I agree, but still preferable to selling up and renting for the rest of your life, I would argue.

As you are aware: However unlikely it is currently likely to happen, IVA's require homeowners to (subject to a property valuation in Month 54 of the IVA), attempt to release equity via remortgage or secured loan, up to 85% LTV to increase creditor dividend up to 100p in the £. (Subject to the resulting payment being max. 50% of you current IVA payment for affordability reasons). It goes without saying that the other usual affordability criteria apply such as limitations based on multiples of household income etc. For most IVA customers, equity release is not possible, so your IVA goes on for a 6th Year instead (which usually works out a lot cheaper).

But who knows what the economic climate will be like in 4-5 Years time? The 'experts'? No chance: I recall when interest rates hit the record low back in 2009, everyone was saying 'well, they cannot stay this way for long' ...5-years later we are still here - and NOBODY predicted that.

So no one has a crystal ball unfortunately, but do your research and you should be OK.

All the best whatever you decide.

Yummy-mummy

Thank you all for your replies.


After going through a full income and expenditure with Payplan, (which I assume will follow the Stepchange guidelines) I am fairly confident that the monthly amount will be manageable even if there are a few changes over the years. Our fixed rate mortgage came to an end in March and we've just taken out a new mortgage fixed for the next 5 years so any there won't be any changes to those payments until March 2019.


I will continue to do my research and will enquire with Payplan who they use for the IVA but thank you again for all your comments, all of which are much appreciated.


YM x

UpToMyNeckInIt

I think Payplan so theirs in house, and they seem to be a pretty good iva provider.

Do have a look at the expenses guidelines - always worth double checking rather than putting all your faith in an iva sales person.

Worth a chat with another couple of companies as well.

It is good that you have safeguarded yourself against possible interest rate rises for the iva term as well.

You seem a little more clued up than the typical customer considering an iva, which is a good thing.

All the best.

sourcrates

When the time comes, if you have to re-mortgage, or take a secured loan, the best plan would be to contact two main stream lenders.
Your credit rating will be very low, you will be on the insolvency register, so your chances of been approved for a loan are pretty slim, chances are you will have to opt for the 1 year extension instead.