As a homeowner who is struggling with bad debt, you’re probably really concerned about the impact that your debt may have on your property. The last thing you would want to do is lose your home to your financial situation. Deciding how to manage your debt and which debt solution is right for you will play a vital role in protecting your assets.
Are there debt solutions for homeowners?
Yes, there are a number of debt solutions suitable for homeowners, however, the correct one for you will depend on your circumstances.
Bankruptcy – Bankruptcy is an insolvency solution that is generally considered a last resort for those that are unable to pay the money that they owe to creditors. If you are a homeowner with equity, you could be forced to sell your home and the proceeds would go towards clearing your debts. So, if you have equity in your home, it’s usually advisable to avoid bankruptcy.
Debt Management Plan (DMP) – A Debt Management Plan (DMP) is an informal agreement between you and your creditors that has been negotiated, usually by a third party, to lower the monthly payments being paid to your creditors.
A DMP isn’t legally binding so your creditors may still charge interest and can continue to take legal action against you. With a DMP, your creditors will assess your financial situation and base your new payment on what you can reasonably afford. This is calculated by taking into account your monthly budget and then, usually, extending your payment period.
Individual Voluntary Arrangement (IVA) – An Individual Voluntary Arrangement (IVA) is a legally binding agreement between an individual and their creditors. It is a solution that allows a person to only repay a percentage of their unsecured debt to their creditors in affordable monthly payments, usually over a fixed term of five or six years. An IVA can also be proposed with a lump sum instead of monthly payments.
Once your IVA is approved by your creditors, interest and charges will be frozen and no further action can be taken by the creditors in relation to your debt. When the IVA is completed, you will receive a certificate of completion, and the remaining unsecured debt is written off.
Will an IVA protect my home?
In short, the answer is yes. Once you are in an IVA, you will be given legal protection from your creditors. This means that your creditors cannot take further action against you in the form of a County Court Judgement (CCJ), bailiff action or a charging order. Whilst you may need to contribute more into your IVA if you are a homeowner with equity, it is highly unlikely that you will be required to sell your home.
Are you a Homeowner Considering an IVA?
Here are some points to consider if you own your home and you’re thinking about applying for an IVA.
- Under the terms of your IVA, if you are a homeowner and have equity in your property, you may be required to re-mortgage six months before the end of the arrangement and pay the money released from the re-mortgage into your IVA.
- If you have equity of less than £5,000, you would not be required to re-mortgage.
- If you do have equity over £5,000 and can’t remortgage, you may need to make extra monthly payments into your IVA, extending the term by 12 months. Otherwise, you could get a third party to provide a lump sum payment if you are able to.
There’s a lot to consider, especially as a homeowner, which makes it important to get debt guidance. To decide if an IVA or any other debt solution available is right for you, get in touch with Debt Movement’s friendly team of guides today and begin your journey to financial freedom.
