IVA vs BR Costs that affect the creditors

Chips_and_Gravy

Hi, I am currently looking at my options and have spoken with step change already. Despite them being very helpful, I felt a little bit pressured into making a decision which surprised me having read all the good things about them. Anyway, nothing major, just a note. I am happy that an IVA would be more beneficial than BR as I have a jointly owned property and would like to keep this (no other assets). I believe that part of propsoing an IVA is the receiver will show what the creditors will receive in the pound via an IVA, compared with what they would receive via bankruptcy which in theory should show the IVA is the best route. Now I can work out (roughly) what they would get in the pound via an IVA over 6yrs. I can also work out roughly what they would get via VR over a 3yr IPA plus my half of the beneifical interest in the jointly owned property. I would expect this to form the basis of their decision however, What are the costs of them chossing BR over IVA from and admin point of view. What I am getting at is are the costs between the two high enough to bear any weight on their decision to agree IVA over BR? Would the hassle and costs of selling the house to get to my 50% affect their decision?

sourcrates

Hi,

Tricky one this, in an IVA, you have to factor in the IP fee`s which are taken from the pot, now every IVA is different, but average cost of running the arrangement for 5/6 years is around 6k, obviously some will be charged more, some less, but those fee`s are paid first, before any disbursements to your creditors.

With bankrupcy, again its circumstance dependant, with this arrangement the creditors could end up with nothing, or very little, you say you have beneficial interest in a house, now given the current climate, people who have money are not spending it, so would that fact sway things with your creditors ? its anyones guess, usually, unless your asset list is a long one, they would prefer IVA over bankrupcy.

RauHughes

IVA fees
Nominees fee - lower of 5xmonthly contributions or £2,00
Supervisors fees - 15% of realisations after nominees been paid
Disbursements - £600-£1500

Some IPs have now adapted a fixed fee structure which has been negotiated with a number of creditors. This is a flat fee of £3,650.

Bankruptcy fees (property involved, IPA) -
Petitioning creditor fee - £1000
Legal fees - £4,500 
Estate agent & solicitors fees -£4,500
IPA fee - £150
Disbursements - £1,000
Trustees fee - 15% of all realisations
VAT - 20% of legal, estate agent disbursements and trustees fee.

This is a rough guide, but generally bankruptcy fees will be considerably higher than those in an IVA. Let's say you have a property worth £200,000 with £130,000 mortgage and a disposable income of £200 per month;

IVA
60 x £200 = £12,000
12 additional payment in lieu of equity = £2,400
Total = £14,400

Less £1000 nominee fee
Less (14,400 - £1000 x 15%) = £2,010 supervisor fee
Less £800 disbursements

Total realisations= £10,590

BANKRUPTCY
Property @ 85% forced sale Val = £170,000
Less mortgage = £40,000
Less co-owner share = £20,000
36 x £200 = 7,200
Total £27,200

Less petitioning creditor cost = £1,000
Less legal fees = £4,500
Less estate agent/solicitor fees = £4,500
Less IPA fee = £150
Less disbursements = £1,000
Less Trustee fee (£27200 x 15%) = £4,080
Less VAT= 2,816

Total realisations = 9,154

This is how the estimated outcome statement would look roughly. Generally, with property involved bankruptcy will show larger gross realisations but lower total realisations due to the considerably higher fees. 

Chips_and_Gravy

Thank you both, much appreciated.