M3.6 - IVAs: the family home and challengeable transactions Flashcards
What is the difference in treatment of a family home R3 vs Protocol?
R3: Do not contain any standard provisions for equity
▪ Usual to include terms requiring re-mortgage up to 85% loan-to-value, failing which, debtor’s agreement to voluntarily sell property
▪ Protocol: Mandatory equity clause to qualify as a protocol IVA
What is the treatment of a family home in a Protocol IVA?
At the start of the IVA, any property that is owned solely or jointly by the consumer should be valued by the consumer and must be verified by the insolvency practitioner to determine whether any potential equity can be paid into the IVA.
The valuation should be based on a reasonable assessment by the consumer; for example, having used an online source. Where the valuation is based on a range, the mid-point should be used.
Where a mid-point valuation is not used, this should be disclosed to creditors together with an explanation.
What is the position where equity is less than £5,000 for dealing with a property in a protocol IVA?
Option 1 -
de minimis
60-month IVA
No equity release
What is the position where equity is greater than £5,000 but unlikely to release when dealing with a property in a protocol IVA?
Option 2 -
+£5k equity but unlikely to release
72-month IVA
No revaluation required
What is the position where equity is greater than £5,000 and likely to release when dealing with a property in a protocol IVA?
Option 3 -
+£5k equity, possible release
72-month IVA
Re- valuation at month 54
Equity can be released by way of a re-mortgage or secured borrowing
A further calculation review will be conducted at month 54 (the ‘review date’)
▪ Debtor to obtain a valuation (verified by the IP) and provide up-to-date balances
▪ Calculation is based on 85% of the value of the property [debtor retains 15%]
If debtor’s interest is under £5k or equity release is unaffordable:
▪ Equity does not have to be released; but
▪ 12 additional contributions are paid (i.e. for the full 72 month IVA term)
If equity release is affordable, amount is capped at 85% of the debtor’s interest
▪ The IVA term is reduced to 60 months
▪ Remaining monthly contribution to the IVA reduced £ for £
▪ IVA is concluded before month 60 if contributions fall below £50 pcm
What are the lending/ affordability criteria for remortgage in a Protocol IVA?
Where it is appropriate to remortgage the property, the specific limits will be:
▪ Remortgages would be a maximum of 85% Loan To Value (LTV).
▪ The incremental cost of the remortgage, including cost of any new repayment
vehicle, will not exceed 50% of the monthly contribution at the review date.
▪ The net worth released will not exceed 100p in the £ excluding statutory interest.
▪ The remortgage term does not extend beyond the later of the consumer’s State
retirement age or the existing mortgage or other secured lending term.
▪ The amount of money introduced into the arrangement will be the mortgage
proceeds less the costs of the remortgage, including any costs to redeem any
existing mortgage and/or secured loan.
Example of remortgage unaffordable Protocol:
4th year of IVA:
Property value at month 54 £200,000
Outstanding mortgage at month 54 £140,000
Net equity: 100% owned by debtor £60,000
Remortgage amount required:
Maximum 85% LTV £170,000
Less existing borrowing £140,000
Maximum additional borrowing for IVA £30,000
▪ Re-mortgage payments on additional mortgage term to retirement age = + £151 per month
▪ Current surplus income £200 (being paid as monthly contributions to the IVA)
▪ In this case, the re-mortgage is unaffordable – contributions will continue until month 72
▪ Or borrow a lesser amount so the payments are <50% of monthly contributions?
How does supervisor protect creditor interests in house in an IVA?
Register a restriction against any property at HM Land Registry. To facilitate this, there will be a requirement for all property owners, irrespective of their obligation to
release equity, to provide the insolvency practitioner with a signed form RX1
within 3 months of the approval of the arrangement.
▪ If the property is jointly-owned, the insolvency practitioner should use best
endeavours to secure a signed RX1 for the property and, if this is not possible,
inform the creditors.
What transactions are challengeable in IVAs?
Only s 423 [transactions defrauding creditors] is of direct application
▪ Debtor required to make a declaration that no transactions that could be
overturned in a bankruptcy (e.g. preferences or undervalue transactions)
Nominee will take steps to verify assets and liabilities
▪ Should report any evidence of challengeable transactions
▪ The IVA may not be fit for purpose
Debtor may make proposals for restoration / reparation
▪ E.g. alternative or additional assets
▪ Third party agreement to cooperate in restoration
▪ Making false or misleading statements may be a criminal offence
