What happens if I get an inheritance while in an IVA?
April 16, 2018
In Northern Ireland if you are in an Individual Voluntary Arrangement (IVA) and you receive an inheritance or other windfall, you may be wondering what will happen to this extra money? Are you allowed to keep it or does it have to be put towards your IVA?
Once you have entered into an IVA you are committed to paying a set monthly amount towards your debts for a five or six year period, after which any remaining balance will be written off. In most circumstances if your income increases during the term of your IVA you are obliged to declare this to your Insolvency Practitioner (IP) and the full amount of the extra money will have to be paid into your IVA to increase the total amount that you will be repaying your creditors.
What is classed as a windfall?
Most IVAs include a windfall clause, which sets out what will happen in the event that you receive a windfall during the period of your IVA. A windfall is classed as the receipt of any unexpected funds that you would not normally receive through your daily activities. This could include an inheritance, lottery win, compensation payment or equity released from the sale of a property.
Will my windfall affect my monthly IVA payments?
In most cases if you receive a windfall during the term of your IVA full amount will need to be paid into the IVA to increase the total amount that you are paying back to your creditors. Your monthly payments will remain the same, as the aim of an IVA is for you to pay off as much as you possibly can towards your debt, with only any ultimately unaffordable amounts being finally written off.
The only circumstances under which a windfall would affect your monthly payments would be if the amount of the inheritance is large enough to pay off your entire debt, including any interest and charges that are owed to your creditors along with any fees that would be due to your IP.
Can I keep any of my windfall during my IVA?
There are some circumstances under which you may be able to keep some or all of a windfall that you receive whilst you are in an IVA. However it is vital that you notify your IP as soon as the windfall is received as they will have the final say on what you should do with the money. Failure to notify your IP could result in your IVA failing.
If the windfall is under £500
In most cases you will be able to keep any windfall that you receive that is of £500 or less.
You have a financial emergency
There are some circumstances where you may be able to keep some or all or your windfall, as long as you have written permission from your IP to do so. This could include needing to make vital repairs to your home or to the vehicle that you need for work.
You have received a windfall but your income will be decreasing
For example if you have been made redundant, your redundancy payment could be classed as a windfall, however in most cases your IP will allow you to keep at least a portion of this to cover your living costs during your search for re-employment.
In some cases if you have received a windfall but your household income has been irrevocably altered, such as an inheritance resulting from the death of a partner or compensation for a life changing injury, you may be able to keep a portion of your windfall to cover vital expenses. Alternatively your IP may be able to arrange using some of your windfall to make one final lump sum payment to your creditors thus ending your IVA and leaving you with the remaining portion to live on.
I am expecting an inheritance or other windfall, but have not yet received it
If you are considering but have not yet started an IVA, but are also due a windfall payment such as an inheritance then there are a number of options which may allow you to keep the full amount of the windfall.
If you receive a windfall before entering into an IVA
In this case the full amount of the windfall will be yours to keep. However you must not use the money to pay off any one of your creditors (such as friends and family) in full, rather than treating all of your creditors equally. This would be classed as making a ‘preferential payment’ and could jeopardise your IVA as your remaining creditors may be less willing to agree to the proposed terms.
If you are expecting a windfall but are not sure exactly when you will receive it
You may want to consider delaying starting your IVA until after you have received your windfall payment. However if you are still under pressure from your creditors, entering into a Debt Management Plan could help to ease things until your windfall arrives. Alternatively you could consider Bankruptcy as it is likely that you will only actually be bankrupt for one year after which time any windfall that you receive will be yours to keep, as opposed to the five or six years when your windfall could be at risk under an IVA.
If you are struggling with problem debts in Northern Ireland or need any advice about how best to deal with a windfall whilst you are under financial pressure, contact the knowledgeable team at Northern Ireland Debt Solutions. We will take the time to fully understand your situation, both now and thinking about the future, before recommending the best course of action for you. So don’t bury your head in the sand, contact us today and take the first step towards dealing with your debts and securing your financial future.
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