Mortgage Arrears

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What are mortgage arrears?

Falling into arrears on your mortgage can lead to serious consequences, including your home being repossessed. It can also have a negative impact to your credit file.

Mortgage firms and lenders have a specific procedure they have to follow when you miss your payments. The culmination of this procedure is repossession, but usually, this is very much a last resort.

Before they can start court proceedings against you, your mortgage lender has to follow certain rules set out by the Financial Conduct Authority (FCA). They must:

▪️ Treat you fairly

▪️ Properly consider any request from you to change the way you pay

▪️ Allow you a chance to pay off your arrears if you offer

▪️Only start action against you as a last resort and only if their other efforts to recover the money have failed

As well as this, they also have to follow the ‘pre-action protocol’. This is a set of rules laid out by the courts that describe how they expect the lender to pursue legal action.

If your lender hasn’t followed this protocol correctly, it may be possible to prevent a possession order being issued.

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Will mortgage companies let you skip a payment?

If you don’t have any form of payment protection in place and need to take a break from paying your mortgage, you are allowed to ask your mortgage lender for a payment break.

You will probably need to confirm with them that your personal circumstances have changed or provide them with a specific reason for why you need the payment break. This could be because of a change of income, redundancy, or something else.

At the end of a mortgage payment break, you will have to pay back the money you’ve missed, but usually your bank will offer you an affordable way to do this.

Most commonly, your mortgage will extend by the number of months you took a break for or the additional amount you’ve missed will be added to your monthly payments.

How long do mortgage arrears stay on your credit file?

Even if you were just behind with one mortgage payment, this will be noted on your credit file for six years. Arrears or very late payments may be explained on your file with more information about how many months it took you to make up for the payments.

As a general rule, the more recent the arrears, the bigger the impact on your credit file they will have.

Can you get a mortgage with arrears?

If you have arrears on your current mortgage and you want to apply for a new mortgage, those arrears will be a big hindrance to potential lenders. You may find it very difficult to find a lender to accept your proposal.

Any negative impact on your credit file will make it difficult to apply for a mortgage, especially if the arrears are recent.

What are my strike off options?

You might find that your request has been blocked if you have made the decision to strike your company off by submitting the DS01 form to Companies House. This is usually because you have outstanding creditors who are set to lose the money that they are owed from your company, if your company is struck off and taken off the register. It could be a supplier chasing an unpaid invoice or HRMC looking to gather unpaid tax. Companies have two months to oppose your strike off, following your initial application. Your company will remain active if Companies House verifies these objections, and your strike off will of course be suspended.

Your 4 options

1. Submit your application again

You can hope that it’s second time lucky for you and your application. There is the possibility that your application could squeeze through this time around but it won’t necessarily be that easy. After all, your creditors could be aware of your intention to strike off your company and they will be ready to launch an opposition to this.

2. Pay off your creditor

If a small outstanding debt is the stumbling block, you could simply pay off that debt. There is no reason for your company strike-off to be rejected if you have paid back everything that you owe.

3. Show caution with multiple creditors

You cannot simply go ahead with option 2 if you have multiple creditors who you owe money to. If you can pay all of them off then fair enough, however, you should not attempt to pay some of them off without paying others off as well. This can look like you are prioritising creditors and this is seen as a wrongful form of trading.

4. Enter a Creditors Voluntary Liquidation (CVL)

A CVL will allow an insolvency practitioner to manage the affairs of your company before closing it down. Assets within the company will be liquidated and ratioed out to outstanding creditors in a fair manner. Outstanding debts on top of that will be written off during the process.

A licensed insolvency practitioner is needed to make sure that the company is closed down in a correct and proper way. You do not have to worry about liquidation after petitioning for your company to be reinstated. Instead, you can be clear that the company has been shut down formerly and you can move forward.

How do I place my company into a CVL?

A CVL can only be created under the assistance of a licensed Insolvency Practitioner (IP). An IP will be able to help you with good advice that you need to sort out your financial situation.

A CVL can only be entered into under the guidance of a licensed Insolvency Practitioner. An Insolvency Practitioner will be able to give you the sound, practical advice you need when dealing with a distressed company and you are highly encouraged to speak to one at the earliest signs of insolvency. They will be able to discuss the various options available to you and your company which may involve rescue and restructuring procedures such as Administration or a CVA.

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If you are unsure whether refinancing this pathway will be right for you, don’t hesitate in contacting us.

Call one of our compassionate experts at 0800 088 2142.

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Company Voluntary Liquidation FAQs

How long does a CVL take?

It takes 14 days to put a company into a CVL, following the date it has been agreed. If 90% of shareholders agree to a short notice, liquidation can happen in half of that time (7 days). 7 days is the minimum statutory notice period to creditors.

What happens in a CVL?

1. Meeting of Board Directors and Sole Director

Once the directors have met and discussed the situation with a Licenced Insolvency Practitioner, they will have to meet and work out what is best for the good of the business – sorting out the finer details of what is going to take place.

2. Shareholder and Creditor Communication

Shareholders and creditors will both be affected by decisions that are made in the previous point. Any decisions on the future of the business are of course going to affect its investors; they will also affect creditors, who will be easier to see how and when they will start to be repaid.

3. Liquidation Begins

The general meeting of shareholders and the decisions of the relevant creditors will usually happen on the same day. 75% of shareholders must agree to liquidation if the company is to be wound up.

There is no longer a requirement to hold a creditors meeting in-person, as per the pandemic, unless it is requested by 10% of creditors in value or number, or simply by 10 creditors. Liquidation would ordinarily commence at 23:59 on the Decision Date, if the appointment of liquidators was approved. This can be done remotely with directors.

4. Process of Liquidation

The Insolvency Practitioner will continue to communicate with creditors during the liquidation of the company, resolving any issues regarding creditor claims and taking the necessary action to fix them. They would have to realise the company assets so that they can be used and distributed across outstanding creditors.

Assets will be independently valued, marketed, and sold to gain capital. A director of the insolvent company could purchase some of these company assets but they could only do so if negotiated through the IP.

There is a set order of priority of whose needs are to be met first, as noted in the Insolvency Act 1986.

Why should I go into a CVL?

Directors of insolvent companies have legal responsibilities to fill. A key obligation, once you know that your business is in an insolvent position, is to prioritise the needs of your creditors above everybody else. This means putting those who you owe money ahead of fellow directors and shareholders.

This means you should not be getting involved in anything that could worsen the position of your creditors. You must avoid adding to their financial losses. That means you must stop trading straight away because this could affect the position of your creditor in a negative sense. However, there are some ways that a company could continue to trade as an insolvent company, if you are able to prove that your work would be of benefit to creditors. This can be rather complex, though, so it makes sense to cross-check any scenario like this with a qualified insolvency practitioner.

Putting your company into a CVL one you know that it’s insolvent is illustrating your desire to protect those creditors. This is good as it shows you are acting as you should according to your legal duties.

Placing a struggling company into liquidation can also be a massive relief. If you have been dealing with angry creditors and customers worried about their future then this could be the best solution for you. After going into a CVL, any unpaid debt, that isn’t personally guaranteed, will be written off. Creditors will no longer be able to chase you personally for outstanding money. Upon entering a CVL, employees will also be allowed to receive redundancy pay – if they qualify for it.

Can you reverse a CVL?

A CLV cannot be reversed once it has been started. Directors of a closed company are able to purchase assets of the business that has gone into the CVL. This could be stock, premises, or the name of the business itself.

What comes after the CVL?

Following completion of the Creditors Voluntary Liquidation, the company will cease to exist as it will have been struck off the Company House register. Unpaid liabilities will be written off unless they were personally guaranteed.

Throughout liquidation, the liquidator must investigate any actions taken by directors and former directors within the last three years. If they do not do this properly, they could be found guilty of wrongful trading, fraud, or misfeasance. Such an act could result in directors being made personally liable for some or all of the company’s debts; they might also be disqualified from being the director of any company for up to 15 years. Nonetheless, such instances are very rare and directors are usually able to move on to a new business venture if they wish to do that.

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