You are allowed to sell your house or flat while you are in an IVA. However you should first agree the amount your IVA company will take from the equity released.
Included in this article:
- What happens to your equity if you sell your house?
- Can you protect any equity released from the sale?
- Should you wait to sell until after your IVA?
What happens to your equity if you sell your house during an IVA?
If you want, you can sell your house or flat while you are in an IVA. However, there are significant implications in terms of any equity that is released as a result.
You will not be allowed to keep all of the equity you get from sale. This is because your agreement will usually state that your share of this money must be treated as a windfall. It will therefore have to be handed to your IVA company.
The cash will first be used to pay off your debt. The total of your original debt less the amount you have already paid into your IVA. Then, they can take 100% of their costs and fees so far incurred. Some agreements may also allow them to take interest on the total original debt as well.
If there are sufficient funds to cover all these amounts, your IVA will be completed. Any funds left over are then returned to you. If there are not sufficient to cover everything, your IVA will not be completed. It will remain in place and you will have to continue making your monthly payments as normal.
Selling your house during an IVA may mean that you end up paying back more towards your debts than you originally owed.
Can you protect any equity released from the sale?
With some planning, it might be possible to increase the amount of equity you can keep if you sell your house. This can be done by making an agreement up front with your IVA company on how much they will take if the sale goes through.
As a starting point you could offer a lump sum equal to your remaining payments in return for the full settlement of the Arrangement. They might ask for more, but you might be able to agree a figure you are both happy with.
This negotiation can take place because ultimately they can’t force you to sell. If you are not happy with the amount demanded, you have the choice of not selling until after your IVA is completed.
It is not wise to simply go ahead with the sale in the hope your IVA company won’t find out. They almost certainly will. Then they are likely to suspend or even fail your IVA unless the funds they ask for are handed over.
Do not sell your property until you understand and are happy with the amount of equity your IVA company will take. Make sure this is done before starting the process.
Should you wait to sell your house until after your IVA?
Whether or not it is sensible to sell your house during an IVA depends on two things. The amount of equity that will be released and the attitude of your IVA company about what will happen to this money.
If there is a significant amount of equity, you should only proceed if you have a prior agreement about how much your IVA company will take.
Make sure the agreement is in writing and you are happy with it. A verbal agreement on the telephone may not be honoured and after the sale has gone through it will be to late.
If you can’t get a written agreement you can accept regarding equity released, going head with any sale is unlikely to be a sensible idea.
In these circumstances the best option is likely to be to delay the sale until after your IVA is over and you have your written completion certificate. You are then entitled to keep all of the equity released.
Do you have to move before your IVA is completed? One option to consider is moving to rented accommodation and renting out your property to someone else.