IVA experience wanted - Desperate to sort out huge debts :(

T0502

Hello! I'm new to this but I'll try to keep it short....

In 2017 & 2018 I took out two large personal loans to help my husbands business. It didn't work, the business ceased trading and I was left with 51k debts. Within 18 months we we're struggling to make the contractual payments. I contacted CAB who helped me out with a budget and proposed a reduced figure to both loan companies (an informal DMP if you will). Thankfully they were accepted and I've kept them up as agreed for just under 12 months. One has been sold out to a debt collection company, but otherwise everything's remained the same.

We bought a house 6 years ago with the Government Help to Buy scheme. We started paying back the Help to Buy last year, with a view to remortgage to include it this year. We've had our meeting recently. I thought being in arrears/default of the loans might mean we can only get a high rate/not many lenders to choose from, but it turns out we absolutely can't do anything with the Help to Buy until I - 1. Clear the arrears 2. Go back to paying the contractual rates & 3. Remain out of arrears for at least 2-3 years.

My problem is the debts at the moment are around £41k and paying back the most we can will take us 29 years. This means we'll never be out of arrears and never be able to remortgage/include the Help to Buy or even move house. I've done ALOT of IVA research, I've spoken to CAB, Business Debt Line & numerous IVA companies. The way I see it, my credit file is ruined for 29 years under the current arrangement...but would only be ruined for 6 years (+2/3 years rebuilding time) if I was to take out an IVA.

Is there anything to loose? Whats the real risks? Is it the best option for me? Is it too good to be true?

Honestly I'm so torn but feel like I'm screwed either way.

Any experience would be helpful, any hidden twists to IVAs/things I should be aware of etc.

Thanks so much in advance!

P.S I'm self-employed, my husband is employed. The debts are in my name only.

sourcrates

Hi,

Your circumstances are almost exactly what an IVA was designed for, a homeowner with large debts, and an asset, in this case a house, to protect, as bankrupcy is out of the question, yes it would make a sensible choice for you, as long as you can maintain the payments, and deal with the re-mortgage clause in year 5.

You get legal protection from your creditors, budgets can be tight, so make sure you do it right first time, if your income increases, so does your IVA payment, you are subject to a yearly review of your finances.

Apart from that, life will go on as normal, your name will be on the insolvency register for the duration, but thats no big deal, everything drops off your file at the end of year 6, and life returns to normality.

IVA`s get a bad press as they are mis-sold to people for whom they are totally inapropriate, but in your case it may be the right choice, just be careful of the IP you choose, there are lots of sharks out there, your best bet is to take advice from stepchange, as the IP they use, is of the more ethical variety, and charges the least in terms of fee`s, all IVA`s attract fee`s, so the less you have to pay the better, they come out of your monthly agreed payment, so are not an "on top" extra.

T0502

Thanks for your reply
Have you had one? Whats the impact like after its completed? I’ve been told its very unlikely i’ll get accepted for a remortgage in year 5 ( which i accept as i cant get one now with just defaults!) so the IVA will continue for another year. But after that...my files wiped clean & im good to go & get one? Seems strange & too good to be true? 

mwarby

You will mortgage wise almost always be asked about whether you've had an IVA or "entered into an arrangement with creditors" (which is a less clear way of asking the same thing)

There is always the risk of an IVA failing too, if your income drops and you can't afford the payments your IP may need to call another meeting of creditors, often times creditors are supportive, but depending on the circumstances and prospects for improvement, it can lead to the IVA failing. If the IVA fails you are essentially back to sqaure one, which often means looking at bankruptcy

Of course you may want to look at it more like this - you have say a 90% chance of the IVA completing, and that puts you in a good place compared to the alternaltives.

Startfreshstart

Your post interests me a lot because I'm in a similar situation. I'm worried about a mortgage in the future and the damage. 

RauHughes

It does seem as if an IVA would be suitable for you based on your brief description of your financial situation, but you MUST seek professional advice from an IP for further guidance. Here are a few points to consider;

Creditors will usually not accept an IVA proposal if the equity in your home is greater than your debt level. To work this out, get some valuations of your home, deduct the help to buy share (remember this is a percentage, not a fixed figure) times the remainder by 85% and deduct your mortgage balance. If this figure is less than your debt level then equity shouldn't be a barrier in approval.

The remortgage clause in month 54 doesn't just apply to remortgages, but also secured loans which can be easier to obtain and significantly more expensive. I don't think this will be an issue for you as I'm pretty sure help to buy rules prevent you from releasing equity without first repaying the help to buy scheme. This makes it all but impossible to release equity in an IVA.

Your tax returns must be up to date for the most recently completed financial year before you apply for your IVA. As of now, that means your year ending April 2020 returns need to be completed and submitted even though normally they wouldn't be due until Jan 21 (most IPs will require you complete your tax return within 3 months of financial year end during the IVA anyway so it's a good habit to get into now). 

This return, your accounts for the same period (if applicable) and your management accounts year to date with supporting evidence of income such as invoices (essentially evidence of your recent income)  will be needed so make sure your house is in order. Many IPs are currently reluctant to take on self employed cases due to the economic climate currently. If you're income has been effected by Covid-19 you will need to demonstrate that it has now returned to normal and justify why it is unlikely to be effected long term in the current climate.

Any arrears owing to HMRC for income tax, your income tax for 2019/20 and your forcast income tax for 20/21 will be included as a debt in the IVA. Any savings you have towards your current tax liability will be paid into the IVA. Your income and expenditure statement will include an allowance to budget for your income tax (i.e. £1,200 per year tax bill / 12 = £100 per month tax allowance). As your current years income tax will be included as a debt, you will not get this allowance in the first year so your IVA Payments from start until the following April will be higher as they will include this amount. (In the example above, your payments would be £100 higher for that initial period).

As Sourcrates states - if your IVA fails you will be, most likely, in a worse position. A failed IVA is grounds for creditors to even petition for bankruptcy. As you're self employed, your income is more 'at risk' than an employee and therefore the chances of your IVA failing is higher. You really need to look long and hard at your business and feel confident that either a) it will continue to produce at least the same level of profitability for the next six years or b) be confident if the business fails you could replace the income in no more than 3 months.

Regarding future mortgages - each lender has particular requirements on IVAs. You will almost definitely have to declare it on future applications no matter how long ago it was. Adverse lenders will normally want you to have completed the IVA for 1-3 years. Most high street lenders will want 6 years clear. These are rough and ready numbers, and some lenders may never touch you again. But generally, a year after completion you will be able to get mortgages at lower LTVs and higher interest rates and this will gradually improve over time.

I hope than information is helpful, but no amount of forum advise will replace a good long chat with an IP about your options. 

Good luck!

feitch

I’m self employed and have had an iva since sep 2019, haven’t made a payment to them for last 7 months as can’t afford there payments so have decided to go bankrupt, and they keep emailing me telling me if I don’t make a payment my iva will fail and could be made bankrupt. Have previously been bankrupt, didn’t have to pay anything to the OR (very low income) and I was discharged after a year. I’ve notified the iva company to cancel the iva but they are dragging their feet sending emails telling me that they don’t think bankruptcy is right for me an I may lose my home and car.... my house has no equity my car is worth less than £1000 and I earn around £6,000 a year with a debt of over £25,000. At the moment they are worse then my creditors phoning, emailing, sending letters and trying to get me on WhatsApp. I’m waiting to hear back from them as have informed them I’ll contact financial ombudsman if the don’t cancel the iva.

sammyjammy

feitch said:

I’m self employed and have had an iva since sep 2019, haven’t made a payment to them for last 7 months as can’t afford there payments so have decided to go bankrupt, and they keep emailing me telling me if I don’t make a payment my iva will fail and could be made bankrupt. Have previously been bankrupt, didn’t have to pay anything to the OR (very low income) and I was discharged after a year. I’ve notified the iva company to cancel the iva but they are dragging their feet sending emails telling me that they don’t think bankruptcy is right for me an I may lose my home and car.... my house has no equity my car is worth less than £1000 and I earn around £6,000 a year with a debt of over £25,000. At the moment they are worse then my creditors phoning, emailing, sending letters and trying to get me on WhatsApp. I’m waiting to hear back from them as have informed them I’ll contact financial ombudsman if the don’t cancel the iva.

Do you have a question?  You really should start your own thread.  You can't just stop paying it and expect them to stop trying to contact you, its not just cancelled!

foxy-stoat

As you have a help to buy loan attached to the property then you will be highly unlikely be accepted for a secured loan which is a good thing if you have equity.  You will be asked to pay for another 12 months.

Bad points to note - if you have any changes in your financial situation (positive) like bonus, payrise, inheritance or other windfalls you wont be able to keep all of it, or any.

Good point to note is if your financial situation gets worse, you may be able to reduce your IVA payments.

IVA is 1 stage down from going Bankrupt, so if you 100% cannot sell stuff, change your lifestyle or reduce your monthly bills and overpay your current loans then IVA maybe an option - its a long road but 29 years a lot longer.