# P I A where there is no or borderline Negative Equity



## Struggling (25 Jan 2013)

Hi,

My understanding is that a PIA is used rather than a Debt Settlement Arrangement when there is a wish to protect the family home. If I have considerable unsecured debt - over 50k and an outstanding mortgage which is roughly the same amount as the house value but is unsustainable; what chance do I have of keeping my home? I assume the secured lender would use their veto to force the sale of the home rather than writing down the debt to a reasonably sized mortgage. Is this the case? Is the family home only secure if you are in substantial negative equity?

Thanks,
S.


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## Dr.Debt (25 Jan 2013)

A PIA is used when you are seeking a solution for both secured and unsecured debt.
A Debt Setlement Arrangement is used for Unsecured Debt.

You would need to give more information about your circumstances to get a proper reply here. (Income, Mortgage Outstanding, House Value, Unsecured loans, Children, Spouse earnings etc)

Based on the brief particulars you have given, you are probably best suited to a DSA,  where you are seeking a solution for 50K of unsustainable unsecured debt. 
A PIA is unlikely to be suitable in your case.As you say quite correctly, the secured lender would most likely veto any PIA which proposed a write off of debt. The secured lender in this case will be expecting to recover its asset in full.

Your unsecured creditors are unlikely to be concerned about your house if there are no "pickings" there (no equity)

Part 2 of your question relates to your home where the value of the house is more or less the same as the outstanding loan, ie zero equity.

No bank will write down the mortgage below the value of the house. 

If the mortgage is still unsustainable even after getting a DSA for the unsecured debt
then the bank may be willing to allow you pay interest only for a period, or lengthen the term of the loan or agree to a split mortgage. They may also want you to sell the house and they will be more keen on this option if they expect to realise the full mortgage value. You will need to negotiate with the bank on that. It would be impossible to give you any more useful advice without more information.


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## Struggling (25 Jan 2013)

Hi Dr. Debt, link to my circumstances detailed in a previous post. Even with a a DSA the mortgage is probably unsustainable and that is at current very low interest rates. I thought the purpose of a PIA was to provide a solution for a person with unsustainable secured and unsecured debt to restructure and from my reading of various information, it seems the possibility exists to write down debt where it is untenable and that you could not be forced to sell your home? askaboutmoney.com/showthread.php?t=173794[/url] Link edited as unable to post links yet.

Appreciate the insights.

S.


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## Dr.Debt (25 Jan 2013)

Three cornerstones of the new Insolvency Act to keep in mind :

1) A bank is entitled to enforce any security it holds against borrowing
2) A Bank can stop a PIA if it holds more than 35% of the total borrowings
3) A Personal Insolvency Practitioner must act fairly and equitably towards all Creditors when drafting a PIA proposal.

Banks are not charities. A bank will not write down the value of your mortgage below the value of your house and it is NOT required to do so under the new Act. If you have zero equity in your property or positive equity in your property and the mortgage repayments are unsustainable then its clear that the best outcome for the bank would be for you to sell the property. If you're not able to meet the interest repayments on the mortgage (even after a DSA arrangement on your unsecured debt) then I think the best option for you is to downsize to a cheaper house. I notice that you have an investment property. Could you move into that ?

Regarding your options :

1) I would look seriously at the DSA option for unsecured debt. I think you would have a good chance of getting that through.

2) As far as I'm concerned, a PIA would not work in your case. The mortgage holder would most likely veto any proposal and certainly not agree to writing off any of the mortgage debt as long as the property is not in negative equity.

3) If the DSA is a runner, there is no need to consider Bankruptcy in your case. Your debts and circumstances do not merit a bankruptcy approach.

4) If you believe your circumstances (Income) will improve in the coming years and you desperately want to keep your existing house, then its quite possible that you could get the bank to accept a smaller monthly payment in the short term.

If you believe your income will remain static for the foreseeable future 
it would probably be better to move to a less expensive property.


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## 44brendan (25 Jan 2013)

Good advice give by Dr Debt. Just to add that while the new Insolvency Legislation will not become operative until Q2 2013 at earliest.


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## Struggling (25 Jan 2013)

Thanks for the detailed reply. The 2nd property is in the UK so not an option. We do not want to give up our home. We very much hope our income will improve in the coming years but as it's a new business there are no guarantees. Can you advise the advantages of a DSA over negotiating directly with creditors?

Thanks,

S


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## Dr.Debt (25 Jan 2013)

In your case you have a lot of small unsecured creditors. Trying to negotiate with each of them directly to achieve an overall acceptable outcome will be very difficult

The advantage of the DSA is that you get to make one proposal to all your creditors at the same time.

As long as 65% of the unsecured creditors accept the proposal, then the remaining 35% must accept it as well.

I think a DSA proposal will add credence to the severity of your situation ie your creditors are likely to take it seriously.

There is nothing to stop you from trying to negotiate with your creditors directly in the 1st instance and if that doesn't work you can resort to the DSA later.


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## Struggling (27 Jan 2013)

So I was correct in my first post in assuming there is no protection mechanism for the family home where there is no or little negative equity and the mortgage is unsustainable (apart from MARPS). Deferred payment etc through direct negotiation with the banks is the best / only method of keeping your home whereas a person with negative equity can use the mechanism of a PIA to safeguard their home. 

S.


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## Importer (27 Jan 2013)

You must appreciate that the insolvency legislation is designed for insolvent debtors which will often include people in negative equity who also have unsecured debt.

It wasn't designed as a way for solvent people to hold on to homes that they cannot afford.

I dont think the PIA process protects people's homes who are in negative equity anymore than people who are not. In each scenario, a person who is not able to at least pay the interest on their home loan is going to come under pressure from their mortgage holder to give up the property.


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## Brendan Burgess (27 Jan 2013)

Hi Struggling

Put all your unsecured debt to one side for the moment

You cannot afford the mortgage on your home.  By your own terms, it's unsustainable. You should therefore sell it with the agreement of your bank and convert any shortfall into unsecured debt. 

You can then get a DSA for all your debt. 

What do you mean by unsustainable? Can you pay the interest on your mortgage? 

If you have equity in your home, the unsecured creditors may want to see it sold so that the equity can be used to pay your unsecured creditors. 

I am not sure if you can have a DSA while you have secured debt?  I think you might have to go for a PIA and the proposal would be that you pay interest only on the mortgage for the duration of the PIA. 

It would not seem reasonable for me for someone to get  a DSA while making full capital and interest repayments on their mortgage.


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## Importer (27 Jan 2013)

Yes you can have a DSA while separately having secured debt which is not part of the DSA.

If 35% of the unsecured creditors dont like whats being proposed, they have an opportunity to veto.

In this particular case, I understand that the OP is in zero equity or slight negative equity


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## Brendan Burgess (28 Jan 2013)

Thanks for the clarification Importer.  Here are the relevant sections from the Act's Explanatory Memorandum. 

It shows how stupid the Act really is. If I was owed money by a creditor who owned their family home outright, I would expect them to sell the home to pay their debts.  If 65% of the creditors don't agree with me, I could be forced to take a debt write-off. 

I would also reject any proposal which involved the creditor paying his mortgage in full while stuffing me. 

I presume that in most cases, the unsecured creditors will veto any such proposal. 




_Section 68_ makes provision for the treatment of secured creditors in a Debt Settlement Arrangement.  Subsection (2) provides that a secured creditor of the debtor may not participate in a Debt Settlement Arrangement with respect to a secured debt.  Subsection (3) makes clear that the provisions of subsection (2) shall not prevent the debtor or personal insolvency practitioner from liaising or sharing information with a secured creditor in connection with a proposed or existing Debt Settlement Arrangement.  

_Section 69_ provides for the treatment of a principal private residence in a Debt Settlement Arrangement. Subsection (1) provides that a personal insolvency practitioner shall, insofar as is reasonably practicable, formulate the proposal on terms which will not require the debtor to dispose of an interest in or cease to occupy his or her principal private residence and shall consider any appropriate alternatives to such vacation.  Subsection (2) sets out a number of matters to which the personal insolvency practitioner shall have regard to in relation to this section.  These are the costs likely to be incurred by the debtor by remaining in occupation of his or her principal private residence, the debtor’s income and other financial circumstances, the ability of other persons residing with the debtor to contribute to the costs of remaining in occupation, and the reasonable living accommodation needs of the debtor and his or her dependants and, having regard to those needs, the cost of alternative accommodation.  Subsection (3) provides that the personal insolvency practitioner shall not be required to formulate the proposal on terms that will not require the debtor to cease to occupy his or her principal private residence in circumstances where the debtor confirms in writing that he or she does not wish to remain in occupation of that residence or where the personal insolvency practitioner, has, having discussed the issue with the debtor, formed the opinion that the costs of continuing to reside in the debtor’s principal private residence are disproportionately large. Subsection (4) provides that a Debt Settlement Arrangement shall not provide for disposal of the debtor’s interest in the principal private residence unless firstly, the debtor has obtained independent legal advice in relation to such disposal or has declined to do so and, secondly, that all applicable provisions of the Family Home Protection Act 1976 or the Civil Partnership and Certain Rights and Obligations of Cohabitants Act 2010 are complied with.


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## ronron (30 Jan 2013)

Struggler

there may another option for you under a PIA which is a debt for equity swap by the secured lender. I know this option is being considered by the banks currently. In this scenario, you may have to offer a % of the family as part of your scheme. In this scenario you retain the PDH but do not own it anymore.


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