When financial circumstances get really desperate, sometimes the only choice that people feel that they have is to divest themselves of the assets which are costing them so much that the depth of their insolvency is increasing by the day. They may be considering entering into an Individual Voluntary Arrangement (IVA) or petitioning for their own bankruptcy.
Take the case of a debtor who has lost his or her job, whose house is in substantial negative equity and who is unable to pay the mortgage even though there are tenants in the house paying regular rental income; on top of that the car is subject to a HP agreement with just over 50% of the monies due under the agreement now paid off.
As far as the car is concerned, it is just a matter of handing it back to the HP provider. It would be prudent to check the agreement itself to see if the conditions are standard but because over 50% of the monies due under the agreement have been paid, no shortfall should arise, provided the debtor has taken reasonable care of it. What constitutes reasonable care may be arguable but to most people it would mean regular servicing, fair condition and no damage. It is debatable as to whether high mileage could be described as unreasonable.
As far as the house is concerned the debtor needs to give the tenants the contractual notice under their tenancy agreement and then to simply contact the mortgage provider and advise them of the intention to cease making mortgage payments. It is advisable to confirm to the mortgage provider the intention of co-operating in regard to access to the house. The mortgagee will normally have a process and a prescribed format for such a voluntary surrender and they will explain this to the debtor. Obviously a shortfall will arise but it will not be certain how much this is until the property is sold on and the amount of the shortfall crystallizes. This could take a considerable amount of time, even years, in the current depressed property market.
It is now much easier to enter into an IVA. The Insolvency Practitioner should be able to help in making an accurate estimate of the shortfall relating to the house. However, it is best for the debtor to avoid agreeing to a minimum dividend in the proposed IVA in case claims come in at a higher level than expected, particularly the mortgage shortfall.