What is equity? This question keeps cropping up regularly. People who are worried about whether to opt for bankruptcy or go for IVA are not clear about the options that are available to them and what will happen to their home.

When you opt for filing bankruptcy and the court grants it, all your assets are handed over to the official receiver. These include your house, car, and all your bank accounts. After selling your assets and paying off your creditors, you will be given the remainder amount. That is if there is any amount remaining. So in a bankruptcy you will be left with some money but without a home.

For example, the market value of your property is a hundred thousand pounds. You have taken unsecured loans against the property worth sixty thousand pounds. After the property is sold, and the unsecured loans paid off, you would get forty thousand pounds. That is unless there are other loans that are also settled from the purchase of the house.

In an IVA, you get to pay off your loans and retain your house too. How this happens is that at the creditors meeting you have to disclose your assets and your loans. If 75% of your creditors agree to the terms offered by your IVA counselor, the remaining 25% will also have to agree to it.

Now in this case again the market value of your house is a hundred thousand pounds. You can get a re-mortgage for 75% of the market value. Which means you can get a second mortgage of seventy five thousand pounds. You have unsecured loans against the property worth sixty thousand pounds. Therefore, after paying the unsecured loans you will have fifteen thousand pounds. In addition, you will have the ownership of your house. This is the release equity that you will have in your house in an IVA.

Of course, these fifteen thousand will be used to repay other loans that you may have acquired, such as loans taken against credit cards, etc. This is quite a tricky option as property markets are in a state of flux as is the economy. The problem will be in securing a re-mortgage. If there is a running mortgage on the house, the mortgage company may hesitate in giving a re-mortgage. If they do agree, the interest and term may be very unsuitable.

Securing release equity on your home in an IVA will depend on a number of factors. Your main creditor may be the mortgage company or another mortgage company that has given you a second mortgage. They may not reach an agreement on re-mortgaging your home. In this case, you may have to find a third mortgage company. However, this is the least of your worries. The reason is that your creditors have to reach an agreement, so they will also try to find a solution.

The main factor to watch out that when you will get the equity released is by taking a further mortgage. You may find out that after paying off your creditors and retaining your house, you are trapped in further debt. Your re-mortgage may cost you a longer mortgage at higher interest rates. You get temporary relief in an IVA and get to keep your house. However, do your mathematics before going into an agreement. Make sure you understand the implications and the long-term factors that you are getting involved in.

You can get free guidance and IVA help here. They are reliable for Debt Advice UK

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