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How will a windfall affect my IVA?

Posted 23 May 2016

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A cash windfall may make no difference to your payments on an IVA, or it may clear your debts entirely. Find out more in our latest blog.

If you’re making monthly payments on an Individual Voluntary Arrangement and you unexpectedly come into some extra cash, what happens next?

Our latest blog will guide you through. 

What is a windfall?

A windfall is a lump sum of cash that you weren’t expecting to receive. You may get it as a result of good luck – such as winning the lottery – or misfortune – for example, if a loved one dies and leaves you an inheritance. 

Although it’s not classed as a windfall you might also receive a cash lump sum if you’re made redundant. What happens to this money depends on how much you receive and whether or not you have another job lined up. You can find out more about how a redundancy can impact your IVA in our blog ‘I’ve been made redundant – what should I do?’.

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Do my creditors need to know?

If you come into extra cash while you’re on an IVA, you must let the Insolvency Practitioner (IP) looking after your debt solution know. They will guide you through the process and communicate with your creditors on your behalf.

Your IVA is an agreement with your creditors that you will pay what you can towards your debts at a rate you can afford.  A windfall means you have more cash that can go towards paying back the money you owe to your creditors – or even clearing the debts once and for all. That’s why your creditors will need to be told. 

Will the entire windfall go to my creditors on an IVA?

If you receive a windfall on an IVA over £500, it will go into the IVA in full. 

Let’s say you win a small amount of money on the lottery. If it’s not enough to clear your debts entirely and you still have money free each month to put towards your debts, you will have to introduce your entire winnings to the IVA. You’ll then carry on with your monthly payments as normal until the IVA completes. 

This is because you have agreed to pay as much as you can towards your debts while the IVA is ongoing - the windfall just means you have more money to put towards those debts. Anything less than £500 you can keep for yourself. 

Can I clear my debts entirely?

Unfortunately, there are no set answers to this question – it all depends on your own circumstances. However, if you have come into enough money to pay off your outstanding balance on your IVA, you may well be able to do so.

If you have enough money to clear your debts then you will pay this in and the IVA will complete. If your funds allow it, you will be expected to pay in enough to clear your debts and also pay the fee for the company that is administering your IVA. Click here for more info on how the fees work on an IVA. 

There are some cases where you can receive a windfall on an IVA, but your disposable income actually goes down at the same time. For instance, your partner may pass away leaving you with a lump sum of money, but also with the loss of their wage month-to-month. Or you might be injured in an accident and receive compensation or an insurance pay-out, but need that money to cover you for loss of earnings while you recover. 

You might also need to pay for changes to be made to your home if the injuries you suffered in the accident were severe and permanent. And if you’re made redundant, you might be relying on your payout to cover your essential expenses while you look for a new job.

If the household income has been left short, it’s sometimes possible to arrange a variation meeting (a meeting where your IP proposes a change in your payments), and offer the creditors a lump sum to finish the IVA early. 

What happens in these more complex cases depends very much on your circumstances and how the creditors see things. That’s where your IP comes in. They will explain your situation to your creditors and help negotiate an outcome that is fair to all.

Can a windfall reduce my IVA payments?

If you receive less than the total value of your debts included in the IVA as a windfall, it’s unlikely that the amount you pay each month, or the period of time you will make these payments for, will be affected by your windfall. What will happen is that you’ll be able to clear more of your debts.  

So, your windfall will most likely be put towards your debts and you will continue to make your monthly payments until the end of your IVA. Depending on the amount of the windfall that was paid in, it might mean that your IVA will complete early if the payments that you have made and the windfall clears all of your debts in full plus any fees or interest that are due. 

 

We hope that our blog has filled in a few of the blanks you may have had about how your IVA can be affected by a cash windfall. To speak to an advisor about this, or to find out more about the debt solution that might be most suitable to you, get in touch using any of the options on the left. 

 

 

 

 

 

 

 

 

by Kyri Levendi

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To find out more about managing your money and getting free debt advice, visit Money Advice Service, an independent service set up to help people manage their money.