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A guide to what happens to the things that matter to you… Equity In the Property


In previous articles I’ve covered what would happen to the things that matter to you within a Bankruptcy. But did you know that there is also an alternative to bankruptcy known as an Individual Voluntary Arrangement (IVA)?


An IVA is a formal ‘offer’ which is made


to creditors on which they vote. In order to obtain approval to an IVA at a creditors meeting, greater than 75 per cent in value of those creditors voting at the creditors meeting, must vote in favour.


In relation to the ‘offer’ there are several options available when proposing an IVA:


IVA based on monthly payments Background Kevin is married without any children. He has lived in his property (which is jointly owned with his wife, Jane) for eight months. The house is valued at £158,000 but he has a mortgage on the property of £160,000. He works as an insurance clerk in PAYE employment earning £2,000 after tax each month. His separate unsecured debts total £48,000


and he has been finding it increasingly difficult to pay the instalments each month and knows that he is robbing Peter to pay Paul. Apart from his jointly owned property,


he has no other Assets. Jane has offered to support Kevin in order for him to offer payment of £400 per month into an IVA. Question Will he be able to put forward an IVA and would his creditors accept it? Answer In order for his creditors to accept an IVA, the proposal would have to demonstrate that the creditors would receive more benefit and a higher dividend that should bankruptcy occur. As the period of bankruptcy is one year,


with income payment order in a bankruptcy lasting three years, creditors would usually be looking for an IVA to run for a period for four to six years. Kevin would also need to demonstrate that


£400 is the maximum that he could afford to pay each month whilst at the same time that it is also a realistic figure that he could pay each month. In these circumstances, it would be cheaper


for Kevin not to propose an IVA. Based on the figures, the home could be saved from the bankruptcy process if required.


THEbusiness QUARTER 9


Background Fred is 69 years of age and live in a property valued at £100,000, which is jointly owned with his wife, and has no mortgage. He has unsecured debts of £90,000 in his


sole name. Due to his age, he no longer works and is now struggling to pay his debts. Apart from half of the equity in his amount, amounting to £50,000, he has no other assets.


Question Will he be able to put forward an IVA and would


Lump sum offer


Background Claire is 37 years of age and lives with her husband in a property in Newport which is owned in his sole name. She works part time as a shop assistant and earns a net amount of £350 per month. She has incurred debt of £20,000 in her sole


name, without her husbands knowledge. Due to her small income, she knows that she is not able to repay her debts. She has no assets, but a relative has indicated that they will offer to ‘gift’ a lump sum of £5,000 into an IVA, provided that the creditors accept that sum in full and final settlement of all of Claire’s debts.


Question Will Claire be able to put forward an IVA and


bankruptcy Alternatives to his creditors accept it?


Answer In order for his creditors to accept an IVA, the proposal would have to demonstrate that they would receive a greater benefit that should a bankruptcy occur. It is likely that an IVA proposal would be accepted because of the much lower costs involved in the IVA process. Fred would have to offer in an IVA (or make


available in any bankruptcy) his half share in the equity in the house. In an IVA, because costs are lower, creditors would receive a higher dividend that would be the case in a bankruptcy.


would her creditors be likely to accept it?


Answer Yes. In order for Claire’s creditors to consider accepting the proposed lump sum in an IVA, the proposal document would have to demonstrate that the creditors would receive a greater dividend return than should a bankruptcy occur. In this instance, as Claire could not afford


to make monthly contributions into an IVA or bankruptcy, then by accepting £5,000 (being the offer made in the lump sum IVA) creditors would receive a dividend of 25p in the pound as opposed to 0p in a bankruptcy. IVAs based on a lump sum gift provide a


quick and easy route to come to a deal with your creditors – and the IVA is completed in months, rather than years.


If experiencing financial difficulties, always seek professional advice before taking any action. For free initial


confidential advice contact Suzi Purnell of Purnells on 01633 214712 or e-mail: suzi@purnells.co.uk. Purnells is based at St


Marks House, 3 Gold Tops, Newport, South Wales, NP20 4PG.


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