Believe it or not, in certain circumstances you can do an IVA, even if your disposable income is zero. In the current recession many people have lost their jobs and those lucky enough to secure a new job sometimes find that their new salary is substantially reduced from before.
Take a situation where you are in good employment, earning a good salary and enjoying a good but modest lifestyle. No problem paying the mortgage or the car HP. Enough money is left over after normal living expenses of food, drink, clothing, utilities and general living expenses are addressed to service the credit card accounts, a few store-cards, a couple of unsecured loans, and to keep the overdraft below authorized limits. There is enough money left to have one decent holiday a year and to make Christmas and birthdays special for the children. Spouse is also working and everything looks rosy in the garden. Unsecured debts amount to about £45,000 made up of the credit cards, loans and overdrafts but they are not really a concern. You have a couple of thousand pounds in savings and anyway the equity in the house should cover a good part of the unsecured debts.
Suddenly employment ceases and after working one month’s notice you walk away with a relatively small redundancy lump sum – say £20,000. You secure a new job relatively quickly but at a much reduced salary. Unfortunately your spouse is also forced to accept reduced working hours. You draw up a new household income and expenditure statement, and while you can tighten belts a little bit you see that you can just about maintain the modest standard of living you enjoyed heretofore. You can still manage the mortgage and the car HP and cover all normal living expenses. However you have little or no disposable income to service your debt. You cannot even make the minimum payments on an ongoing basis. Servicing the credit card accounts, the store-cards, the unsecured loans and the overdrafts will whittle away your redundancy lump sum very quickly. When you check the mortgage you find that there is little or no equity in the family home due to the general fall in property values in the recession. In any case you suspect that you would struggle to re-mortgage the property due to the fall in your income. Even if you succeeded in re-mortgaging, the loan to value ratio could be limited to perhaps as little as 80%, certainly not even enough to clear your current mortgage.
The annual holiday seems like a lifetime away and you no longer look forward to Christmas. Getting any new credit is out of the question – it would only make a bad situation worse.
However, all is not lost. You still have your redundancy lump sum and your savings. If you were to offer your creditors a lump sum in an IVA perhaps they would accept it. The case for their acceptance of a well constructed IVA proposal is powerful. No extravagant lifestyle. No equity in the property. No prospect of a return for creditors in the event of your being made bankrupt. It would make absolute sense for creditors to accept a lump sum settlement from you in an IVA. And while your family lifestyle would diminish a little, you and your family would be debt free and would not lose your house. So how do you go about entering an IVA?
If you find yourself in circumstances such as in the example outlined above, a good initial course of action is to consult with a reputable Insolvency Practitioner, otherwise known as an IP. Your circumstances will be treated confidentially and your IP will be able to advise you not just on the merits of an IVA but also on all of the other options available. Initial advice should cost you nothing.
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