About to go bankrupt / IVA. Would like to know the differences?

Skintnorthernmonkey · 7 September 2017 at 9:48AM

Hello all! First time poster here...

I suppose I best talk about my situation first.
I own a home that is in negative equity. I am employed full time.
I'm carrying a lot of debt after redundancy a couple of years ago, followed by a period of unemployment. I came from a well paid job, with a little debt but nothing that was worth worrying about at all. My redundancy, owed to a contract loophole in the way I was paid, was an absolute pittance (statutory redundancy, which amounted to about £1200).
I spent the redundancy on some qualifications (electrical) so that, if I did not find work, I could trade as an electrician.
I survived on credit cards (I took out an interest free card when I got wind of the redundancy as a parachute / means of funding a business if needed). Just as I was about to start trading, I was offered a job that didn't pay very well but it was enough to buy some time.
I was keeping my finances under control by moving things onto interest free deals paying off what I could, in the hope I would land a higher paid job at some point and make better headway. However I am unable to move the debts further as my access to credit has dried up, and a higher paid job hasn't happened despite best efforts.
Meanwhile my wife has just finished her post-grad degree, has taken on a very low paid job, and I cannot lean on her more than I am already.

My problem is much worse than I first thought, total unsecured debts amount to something around £30,000.

What brought it to a head is a serious structural issue that has just come to light in the house (lime mortar that has degraded completely, and despite lots of pointing done over the years, we have just unearthed a terrifying issue while I was trying to re-plaster a wall in which the mortar has just let go completely on, it looks like much of the house is the same. The bricks are literally not held together at all, I took the whole wall down by hand with no tools. Luckily, it's not supporting anything, but we have the same issue all over the house and some of it IS supporting the floor above / roof). I have a lack of funds or experience to rectify this. Coupled with this house being in negative equity (value was £20k short of mortgage last valuation when I tried to remortgage a couple of years back, I have someone coming to value it again tonight). On top of that neither of us actually want this house... Given I am sitting on a financial time bomb, and the house is worth buttons, its a situation that at best I will climb out of in many many years, at worst it all collapses soon.

I've had debt advice from StepChange and the CAB, and their conclusion is either an IVA or bankruptcy. Given they are both insolvency options, and an IVA is aimed at keeping assets (which I don't have) and takes 5 years longer than bankruptcy to discharge with the same long-term effects, it leaves me to very seriously consider handing the property over to the mortgage co, walking away and starting afresh.

I have already set up a new basic bank account with a provider that I have never been involved with before.
My wife and I are financially completely separated, we have no joint debts, the house is in my name alone (bought before we even met), we have no joint bank accounts, no joint financial deals, no joint credit. The debts are mine alone.
I am not presently in arrears with any lenders, and have not been for a good number of years.

I would like to hear from people who have been through the system. What would your advice be in this situation? Obviously, the valuation tonight will have a some impact on the decision.

What is the difference in terms of effects to me between IVA and bankruptcy?
I keep hearing that an IVA is "better" but for the life of me I cannot see any beneft to ME with an IVA, the only thing I see is that creditors claw back some money, and someone (the IVA practitioner) takes a cut. A cynical view, perhaps? But one which I can't seem to shake. Stepchange recommended the IVA over bankruptcy, but again they have a vested interest since they will charge a fee in the IVA to do it.
Going forwards, which is easier, and faster, to recover from?
Bankruptcy seems to have a huge stigma attached to it, but I can't find a good reason for this?

I wold really love to hear from anyone who has been through either process, who are willing to share their experiences, so that I can make more of an informed decision.

Thank you in advance. I will keep posting about my experiences too in the hope it helps someone else.

sourcrates · 7 September 2017 at 9:58AM

Hi,

My IVA lasted 6 years, was a long time, knowing what I know now, I would of gone bankrupt instead, as you say, it's over a lot quicker.

I had no assets either, if your not bothered about the house, go bankrupt.

IVA's are mainly recommended if you have a property you wish to protect.

Talk through the pro's and con's with a debt advisor before committing to anything though.

debt_doctor · 7 September 2017 at 10:42AM

Hi,

I think your thoughts on an IVA are absolutely correct.
The only time I see an IVA is better for a client over bankruptcy is where they have an asset worth at least 10k to protect or they are in a profession where they cannot go bankrupt. Also possibly when they may wish to continue being a Company Director.

I presume you are deemed to have some surplus income. The bottom line is you can pay your surplus income in to an IPA for 3 years or pay the same surplus income in to an IVA for 6 years.

Also, your bankruptcy cannot fail - an IVA can and often does. It is perfectly possible to pay in to an IVA for several years only for it to all go wrong due to a circumstance change and leaving you in a position where the money paid all goes to the IP and back to square one with the creditors.
DD

debt_doctor · 7 September 2017 at 10:47AM

If you decide to go bankrupt then the most important thing for you is finding somewhere else to live.
You need to look for a rental property, suitable and affordable, and a reasonable price for the area you choose to live in.
Think whether you need a bond and deposit and think about stopping paying the mortgage in order to raise such a deposit/ bond.
A last point is that it is much easier to obtain a rental property (from a credit rating point of view) prior to bankruptcy than after.
Likely to need more rent upfront after bankruptcy.
DD

Skintnorthernmonkey · 7 September 2017 at 12:04PM

I have already found a house that is suitable to move into. It's ideally sized, in a good location, we could afford it if I was debt-free... But, the rent is £300 month more than my mortgage, so we will still be hard up. That said, I suspect (correct me if I am wrong) that we may as well go for the best we can afford, since "surplus" money will be hoovered up anyway?

I have three questions actually...

1)If we end up deciding we would quite like to keep the house (for whatever reason), one of the unsecured debts is an account with the mortgage provider. If that unsecured debt gets cleared off, will that then affect the secured debts that the mortgage company holds over me? Will that then make them default the whole lot?
So, it seems that an IVA is a bit of a waste of time in my position then, and bankruptcy is the lesser of two evils?

2) I have already opened up a basic bank account in preparation for what was going to be a DMP but is now going to be either IVA or bankruptcy. The account has been open for about 2 weeks, has no overdraft facility etc and is simply there for my salary to be paid into. Will that account likely be closed as part of the bankruptcy? How do I then get my salary paid?

3) If I am going to go bankrupt and decide to hand the keys back to the mortgage company, is it worth keeping on paying the mortgage until the bankruptcy kicks in, or is it better to just stop and scrape that money together to pay for a deposit and rent on the new house and live in the now-defunct house until we can move to the new one?

debt_doctor · 7 September 2017 at 1:41PM

Skintnorthernmonkey wrote: »

I have already found a house that is suitable to move into. It's ideally sized, in a good location, we could afford it if I was debt-free... But, the rent is £300 month more than my mortgage, so we will still be hard up. That said, I suspect (correct me if I am wrong) that we may as well go for the best we can afford, since "surplus" money will be hoovered up anyway?

I have three questions actually...

1)If we end up deciding we would quite like to keep the house (for whatever reason), one of the unsecured debts is an account with the mortgage provider. If that unsecured debt gets cleared off, will that then affect the secured debts that the mortgage company holds over me? Will that then make them default the whole lot? Is it the Northern Rock Together Mortgage? Just wondered. I have never seen an unsecured element attached to a mortgage contract being used to default the mortgage.
So, it seems that an IVA is a bit of a waste of time in my position then, and bankruptcy is the lesser of two evils? That's my view, yes.

2) I have already opened up a basic bank account in preparation for what was going to be a DMP but is now going to be either IVA or bankruptcy. The account has been open for about 2 weeks, has no overdraft facility etc and is simply there for my salary to be paid into. Will that account likely be closed as part of the bankruptcy? How do I then get my salary paid? The OR will not do anything with that account - most banks these days allow bankrupts to bank with them. Talk it through with your bank prior and if necessary get another account.

3) If I am going to go bankrupt and decide to hand the keys back to the mortgage company, is it worth keeping on paying the mortgage until the bankruptcy kicks in, or is it better to just stop and scrape that money together to pay for a deposit and rent on the new house and live in the now-defunct house until we can move to the new one? Why pay for something you are going to lose?

They are my views, hope it helps.
DD

Skintnorthernmonkey · 7 September 2017 at 8:26PM

Excellent, that helps a lot. Yes the mortgage is Northern Rock / NRAM / whatever it is called this week. I was stitched up a kipper when I took the mortgage out, there's a long story there that isn't worth telling as it doesn't help, but yes. A stitch up.

Just had the estate agent round to value the property. I am on or around parity with the mortgage, so not as bad as it could have been but not good either. Better than it was (though the last valuation was by a mortgage company).

*Next door sold two years ago for almost exactly what my mortgage balance is.
*Property prices have not moved in the area since the crash, indeed many have dropped in value.
*I do not envisage any significant equity in the property in the foreseeable future.
*There remains the money that needs to be spent on the house to put it right.

A question: Can I make overpayments into my mortgage after being declared bankrupt? Or will I likely not be able to afford it as that would be considered surplus, and so be taken to pay off creditors during my bankruptcy?

The place I would like to rent is £350 a month more than my mortgage would be once the unsecured part of the account has been written off. What I am getting at here is would it be worth using that £350 a month to create some equity in the property, or carry out the structural works required, or is that a fruitless exercise?

debt_doctor · 8 September 2017 at 11:48AM

Skintnorthernmonkey wrote: »

Excellent, that helps a lot. Yes the mortgage is Northern Rock / NRAM / whatever it is called this week. I was stitched up a kipper when I took the mortgage out, there's a long story there that isn't worth telling as it doesn't help, but yes. A stitch up.

Just had the estate agent round to value the property. I am on or around parity with the mortgage, so not as bad as it could have been but not good either. Better than it was (though the last valuation was by a mortgage company).

*Next door sold two years ago for almost exactly what my mortgage balance is.
*Property prices have not moved in the area since the crash, indeed many have dropped in value.
*I do not envisage any significant equity in the property in the foreseeable future.
*There remains the money that needs to be spent on the house to put it right.

A question: Can I make overpayments into my mortgage after being declared bankrupt? Or will I likely not be able to afford it as that would be considered surplus, and so be taken to pay off creditors during my bankruptcy?

The place I would like to rent is £350 a month more than my mortgage would be once the unsecured part of the account has been written off. What I am getting at here is would it be worth using that £350 a month to create some equity in the property, or carry out the structural works required, or is that a fruitless exercise?

Was the estate agent aware that the brick mortar had perished to an extent that there was nothing bonding the bricks together? This would have a dramatic affect upon valuation.

You would not be able to make overpayments to a mortgage whilst you were undischarged, and if subject to an IPA, 3 years.

How much will these essential works cost?

Only you can decide on whether you want to stay in the property. As an adviser, I have to strip out all of the emotion in any situation I am looking at, and look at cold hard facts. You have an emotional attachment to you house (like most people) and have to weigh up the overall position that will work out best for you.
DD

Skintnorthernmonkey · 8 September 2017 at 12:16PM

I pointed out the works that I was doing at the time, where the wall had come down and why. Without structural surveys I couldn't really say how far the problem has gone yet. As I said, much of the house has already been re-pointed, but what lurks behind the plaster I could not say.

That does make sense about the IPA and over payments.

I am waiting for professional advice on the mortar issue...

Skintnorthernmonkey · 8 September 2017 at 12:51PM

PS

FWIW, my emotional position on the house is rather simple:

It can go F it's self. Would rather be rid of it but if I can milk some cash out of it later down the line then it serves a purpose.

ToxtethO'Grady · 9 September 2017 at 2:04AM

I second what DD has said,BR seems your best option based on your situation. A survey is like an MOT of a car and a valuation is a private buyer kicking the tyres so your house valuation could change drastically.

Maybe try to stay in the house during the BR as it doesn't look like it would be viewed as a realisable asset. And remember you can put essential maintenance on your SOA for the house during that time. Less hassle moving and finding extra money for rent.

Best of luck with everything.

About to go bankrupt / IVA. Would like to know the differences?

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