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Bankruptcy and IVA mortgage guide

Many UK lenders used to offer products specifically tailored for those consumers with low credit ratings. Collectively, this group of products is referred to as sub-prime mortgages, and also sometimes ‘credit repair’ or ‘non conforming’ mortgages.

However, since the credit crunch such loans have largely disappeared. Mortgages of this type are too high risk for most lenders in the current climate since they are more likely to go into arrears than others. The bundling of sub-prime loans into securities is largely to blame for the credit crunch in the USA.

If you have been declared bankrupt or have entered into an IVA (individual voluntary arrangement) because your debts are unmanageable, then you're not going to be able to take out a new mortgage easily, if at all. Seek the help of a free debt counselling service (don't be swayed by the fee-charging companies) and sort out your debt problems. Once you have shown that you can handle your finances for a while, you can try again to get a mortgage – by then, the financial climate may have changed enough that the sub-prime market revives.

Bankruptcy

Bankruptcy is an order made under the Insolvency Act of 1986 against an individual debtor who is unable to pay their debts. Once bankrupt, the debtor is subject to certain terms and restrictions, until they are ‘discharged from bankruptcy’ which will usually happen after 12 months provided creditors are satisfied.

Bankruptcy is rightly viewed as a major financial catastrophe for the individual involved. A person facing bankruptcy also faces serious implications. Bankrupts are barred from some jobs, need court permission for others, may lose possessions if an official receiver sells them and are essentially barred from taking out credit for six years as the bankruptcy stays on their credit file for this time.

Although there are a few lenders which will consider someone who has been bankrupt - any loans will be charged at astronomical interest rates as they are viewed as extremely high risk. And there may be heavy conditions and restrictions applied to any credit.

IVA (Individual Voluntary Arrangement)

An IVA, like bankruptcy, is a formal insolvency procedure. An IVA enables the debtor to pay off the whole of their debt or a part of it over a period of time provided a majority of their creditors agree to allow them to enter into an IVA. Rather than suffering the stigma of bankruptcy, the debtor works closely with their creditors to work out an affordable repayment plan.

In the UK, homeowners working through an IVA are often in a position to keep their homes, but in many instances the creditors will impose conditions on how the equity is to be paid back. For instance, in many IVA cases, a clause will be built into the loan that stipulates that your house must be valued after a certain period of time and a percentage of the equity paid to the creditors.

When it comes to poor credit, many brokers offer specialised quotes and advice but these options have largely disappeared as the economy has worsened and property prices have fallen.

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