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.
Included in this article:
- What is a Windfall?
- Can the money be used to pay an IVA early?
- Is it ever possible to keep any of the cash?
- Can you keep a Windfall after your IVA is completed?
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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.
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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.
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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.
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.
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?
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.
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?
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.