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What happens to a Windfall during an IVA?
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What happens to a Windfall during an IVA?

What happens to a Windfall during an IVA?

A windfall received during an IVA normally has to be paid into the Arrangement. It is unlikely to result in the agreement being paid off earlier.

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What is a windfall?

A windfall is any sum of money you receive during your IVA over and above your expected income. If you get any money like this 100% of it will normally have to be paid into the Arrangement.

Common examples of windfalls are an inheritance payment, lottery win or compensation for mis selling or personal injury. Equity released from the sale of a property would also fit into this category.

If a third party offers to lend you money to settle your IVA this is not a windfall. This is because the money would not otherwise be yours. It is only available if your creditors agree to take it in settlement of the Arrangement.

If you earn overtime or get a bonus from your employer this is generally not classed as a windfall. In these circumstances you will normally be able to keep 50% of the extra money you have received.

Can a windfall be used to pay off an IVA early?

Although any windfall you receive has to be paid into your IVA this does not mean the Arrangement will be paid off sooner. The result is simply that a higher portion of the debt you originally owed is repaid.

After the cash you have received is handed over your ongoing payments continue as normal. The outstanding amount you are required to pay is not reduced.

Having said that there are circumstances where a windfall could result in an IVA being paid off early. One of these is if the amount received is so large that the total outstanding debt is paid in full together with fees and interest.

Although a redundancy payment is classed as a windfall it may be possible to use this cash to settle an IVA early. This will depend on how likely you are to be able to get a new job.

Is it ever possible to keep cash received during an IVA?

If the windfall you have received is less than £500 you may be able to keep this money. Given your IVA is based on the standard Protocol terms and conditions receipts of less than £500 do not have to be handed over.

Where the windfall is over £500 generally speaking you have to pay the whole amount into the Arrangement. However depending on the attitude of your Insolvency Practitioner (IP) you might be able to keep the first £500.

In addition if you have a financial emergency meaning that your health or the IVA itself is at risk you might be allowed to keep more. For example if you need to carry out vital repairs to the car you need to get to work.

You must not spend any part of a windfall you have received without your IP’s prior agreement. If they ask you to hand it over after it has already been spent your whole Arrangement could be put at risk.

Can you keep windfalls received after your IVA is Completed?

The IVA Windfall rules remain in place until your IVA is formally completed. They are only lifted once you have received your Completion Certificate. This will normally be 6-8 weeks after you have made your final payment.

You might get a cash lump sum after you have made your last payment but before you receive your Certificate. If this happens it still has to be paid into the Arrangement.

After you have your Completion Certificate almost all cash sums you get from then on will be yours to keep. You will not have to hand them over to your IVA company.

There are a few windfalls that still have to be paid into your IVA after you have a completion certificate. Examples include compensation paid for wrongdoing which happened before or during your IVA.

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43 thoughts on “What happens to a Windfall during an IVA?

  1. John says:

    Hello I have a IVA with a very large and well known company, I received a inheritance lump sum during my IVA which I declared to my IVA company in Feb 2018. In April 2018 I settled the entire balance owing on my IVA, fees and interest and all.

    I was not made aware of any completion certificate by my IVA provider and have not received any such certificate or completion paperwork from them. I assumed all would be handled by them in good time and a orderly fashion. June 2019 I have made contact with them and they have said it is being handled by they’re completion team and I am still left waiting. What should I do next?

    1. Hi John

      This sounds very unsatisfactory. I would say a sensible amount of time for an IVA company to issue a completion certificate in your circumstances would be 3 months (6 months at the maximum).

      My suggestion is you contact them again and start putting pressure on them. Tell them unless you get your certificate within 4 weeks you will escalate a complaint to their governing body. This will often help “jolly them along”.

  2. John says:

    Many thanks for the advice James, I will contact them again and try to gently encourage them to move things along!

  3. J Smith says:

    Hi James

    I have 3 years owing on an IVA and due to becoming the age of 55 can i draw my private 10000 pension. I owe including iva fees 19000. but as they wipe of a persentage it works out at nearly 8000. I pay £130 a month. Can they take the full amount off me.

    1. Hi

      You need to be VERY careful about drawing money out of your pension while you are in an IVA. You cannot be forced to do so. However if you do without prior agreement with your IVA company the full amount you draw down will be treated as a windfall. Then 100% of this cash would have to be paid into your IVA and your ongoing monthly payments would continue as normal. You would get no benefit from it.

      That said it is possible to settle an IVA early with a lump sum from your pension but you need to go about it in the right way. First you need to speak to your IVA company and tell them that is what you want to do. Agree with them how much you would need to draw to settle your IVA and confirm this in writing. If you are happy your IVA company will then normally have to call a variation meeting to get the agreement of your creditors. Once they say yes, then and only then do you draw the cash from your pension.

      The reason this can work is because you cannot be forced to draw money from your pension during your IVA. You can chose to make the offer but if it is rejected of the amount demanded is too high the offer can be withdrawn. However if this is the case you must not draw down until your IVA is completed.

  4. Anthony Pemberton says:

    I have a IVA. I’ve just come into a 5 figure fee compensation. I made sure they said it’s for hurt feelings. I’m using my cash for my wedding do I have to declare this cash?

    1. Hi Anthony

      Even if you feel that this money cannot be claimed by your IVA company my advise would be that you must declare it to them. If they agree it cannot be claimed by your IVA then of course you will be able to keep it. However if they do not agree you are going to have to hand it over.

      You may therefore think it is not worth the risk telling them. However if they find out down the line (perhaps at your annual review when they look at your bank statements) and demand the money be handed over then but you have already spent it, your IVA could fail as a result.

  5. James Lucas says:

    My IVA last payment was May 2019, I received my completion certificate Dated 19/09/2019.
    I have just won a compensation claim with the FSCS 0410/2019 for my pension pot being missed sold, which has been sent to the IVA as the compensation claim was being processed before the completion certificate was issued.
    Can I do anything about that?

    1. Hi James

      Normally if you start a claim for compensation during an IVA any compensation you are awarded must be paid into the arrangement as a windfall. This is the case whether the completion certificate has been issued or not on the date the compensation is actually paid. It is the date the claim started which defines any subsequent payment as a windfall
      not the date the IVA completed.

      I am not a solicitor. However I have often thought that compensation for a mis-sold pension scheme should not be caught by the “windfall clause”. This is because the pension fund itself is an exempt asset. However I am not aware of any case law that backs up this argument. As such the only way to overturn your IVA company’s decision to keep this money would be to speak to a solicitor and consider taking them to court.

  6. Mark says:

    Hi James,

    My father had an IVA and finished payments circa 4 years ago. He received a windfall of around 7k for mis sold PPI. He was contacted last week by the IVA company who advised he would need to pay back 4k of this windfall. 4 years seems a long time after completion to be chasing this. Can you advise if this seems appropriate?

    Thanks,
    Mark

    1. Hi Mark

      In March 17 the Court of Appeal ruled on a case called Green v Wright. The ruling in that particular case stated that PPI compensation claimed after an IVA is completed still has to be paid to the IVA company. There is no time limit on this. As such if the claim is made 4 years after the completion certificate is issued it still stands.

      Many IVA companies have said that the ruling does not apply to them due to different IVA terms and conditions. However others have said it does. I assume your Father’s IVA company are one of these. As such money claimed is now likely to go to them I am afraid. There is nothing that can be done about it.

  7. shaz mucha says:

    My husband is just about to receive a compensation payment for an injury and we have an IVA…how do we stand with this.

    1. Hi Shaz

      Generally speaking if your husband receives a windfall during his IVA it will be have to be paid into the Arrangement in addition to his ongoing monthly payment. On the face of it compensation for personal injury is a windfall so the rule applies.

      That said normally there are two different types of personal injury compensation. Money awarded for pain and suffering and money awarded for loss of earnings. Generally the IVA company will allow him to keep the award for pain and suffering but any for loss of earnings would have to be paid to them.

      You will need to ensure the solicitor or claims company you are using gives you a clear written break down stating how much of any award is for each area. The IVA company will need this to decide what (if anything) they need to take and what he can keep.

  8. Bridget says:

    I have an IVA since May 2019. I contacted them to say that I have a pension which I am surrendering to pay off what I owe as I worry constantly about this IVA as I am now 55.
    The Pension has been frozen for years and I will definitely get more out of the pension that I owe.

    I know that my total owing plus interest and fees will be due as they told me this. Will they just take total owing plus interest and fees? I did not know I had to contact them as I just thought as long as IVA paid in full along with fees I will be ok

    1. Hi Bridget

      Something does not sound right here. Normally you should be able to settle an IVA early with a lump sum from your pension without having to pay interest and fees….. The reason for this is you cannot be forced to take your pension. As such most IVA companies would agree to settling if you release sufficient to pay off the remaining total of your payments. Paying more than this when you do not have to does not seem sensible. I think your IVA company is trying to pull a fast one….

      I understand that you simply want your IVA behind you. However I would urge you to consider the extra amount you will be paying by going along with the IVA company’s request rather than simply continuing with your monthly payments. Remember you have the option of accessing your pension at any time so if your payments really become unmanageable you can always fall back on it at that time if you need to.

  9. Peter says:

    Hi,

    I started IVA in July 2016. In August 2016 I had a traffic accident and as a result I lost my job in December 2017 (unfit for work). I am on ESA since December 2016 and even though I got all the benefits, I continued to pay my IVA from my benefits and have paid 36 out of 72 monthly IVA payments so far.

    I have applied for compensation re the accident and am likely to get around £70,000-£80,000 (after solicitors costs and paying back benefit pre payments etc). I am still unable to work, I am on NHS waiting list for a surgery and CBT counselling. The expected waiting time for a surgery is 1 Year and must be followed by a physiotherapy for about 6-9 months. CBT counselling lasts about 9 months too. Meaning I will be able to return to job in about 2-3 years the earliest.

    How do I stand on keeping the compensation? Will I be forced to pay all of the remaining balance on my IVA even though I’ve kept paying it when I could not really afford to? If I have to pay it all, what’s the point of the monthly payments then? FYI so far only a few quid, yes about £200 has been paid towards the debt, the rest the IVA fees swallowed and the debt is about £24000.

    How it can be justified to take nearly full debt of me, when I and my family have been on a breadline since the accident. I have no prospect of finding a job and no income plus still being treated for physical and mental illness? Is anything can be done in this situation? Thanks

    1. Hi Peter

      Sorry to hear about your situation. Remember any compensation you receive for “pain and suffering” should be yours to keep. Only money awarded for loss of earnings can be considered a windfall by your IVA. As such it is important for you to get a breakdown of the reasons for the payment from your solicitor.

      Legally speaking any amount out of the total you receive which is related to loss of earnings is a windfall and should be paid into your IVA in full. If this means that you end up repaying your total debt then this is what you signed up for.

      That said yours do seem to be very specific circumstances. As you say you are unlikely to be able to work again in the short to medium term and have considerable ongoing rehabilitation costs. In these situations your IVA company does have discretion to help you out.

      I would have thought there would be a strong case for them speaking to your creditors and negotiating to settle your IVA with a smaller sum. This would then leave you with the maximum funds to try to get your life back on track.

      I sincerely hope your IP takes this attitude.

  10. RUSSELL MASON says:

    I have made the final payment on my IVA back in August this year and it is still in the completions process.

    I was made aware that I am due a sizeable tax rebate from HMRC.

    Does this money have to be paid in to the IVA ?

    1. Hi Russell

      Regardless of when you made your final payment your IVA is not over until you get your completion certificate. As such legally speaking any windfalls you receive before the date stated on the completion certificate still have to be paid into the IVA.

      Given this I would say you will have to hand over this tax rebate to your IVA company. Also I assume the rebate is for the tax year 2018/19. As such it would have been for a period when you were certainly paying your IVA and so there can really be no argument that it should be treated as a windfall and paid in.

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