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
The wife and I are currently in an IVA at £75 per month and we are 41 month in our 60 months of payments. This is a small amount and as circumstances have changed we are wanting to end the IVA. If the money we get is greater than what we owe on the IVA can it pay it off or could we end up paying more than we owed as a whole.
Your advise is greatly appreciated
Regards
Javan
Hi Javan
I assume that you anticipate that you will get a windfall of some sort? If so, as the article above states, the money you get will have to be paid to your IVA company. If the sum you receive is significant then the answer to your question is yes, you can end up paying more back than you originally owed.
The maximum your IVA company can take from your windfall is calculated as follows:
– Up to 100% of the debt you originally owed (less the payments you have already made). So in your case this is a further £1425 (19 x £75)
– 100% of the IVA company fees and costs (normally around £2000-3000 but you will have to check with your specific company)
– interest charged at 8% per year on your total original debt from the start date of the IVA
The fact is that this situation is very rare because most people do not get windfalls during their IVA. However when it happens, it understandably seems really unfair.
The only way round it is normally to cancel your whole IVA and then pay your outstanding debt yourself once you get the windfall. However there are various implications of doing this you need to be aware of before making your decision. You should not cancel your IVA without first getting advice. If you want to chat it through please contact me at Beat My Debt.
Hi,
I am currently on maternity leave and will be on unpaid leave for the last 3 months. I am due to return in April. My work have decided to issue my enhanced maternity pay (12 weeks half pay) once I have returned for 12 weeks rather than in this period while I need the money most. Does this count as a windfall? I did not think it did as it is maternity pay. Would I need to give this to the IVA.
Hi Keeley
Standard maternity pay is not normally treated as a windfall as it is paid each month that you are on maternity. I have never heard of an employer ‘holding back’ standard maternity pay. It sounds as though this is something over and above the standard that they pay you as a kind of return to work bonus?
This is unusual so I can’t say for sure. If I am right, I think there is a risk that your IVA company will treat it as a bonus rather than standard maternity and could claim it for your IVA.
To be honest in these unusual situations every IVA company will interpret the rules differently. As such to be 100% sure I would contact your IVA company, explain the situation and ask them to confirm how they will treat this money.
Hi,
This is purely hypothetical, I am currently in an IVA. If i was to have the luck of a large lottery win during the IVA, but didn’t actually claim the prize until after a completion certificate was issued (you have 180 days to claim), would i still have to pay the windfall into the IVA???
Hi Ian
Generally speaking this money would still have to be paid to your IVA company. It would depend on the terms of your IVA agreement. However normally it is the date the windfall becomes due which is important, not the date you actually receive the funds. As such in this situation it is likely that legally you would still be required to pay funds to your IP if they discovered them. The situation with PPI claims post IVA is similar to this.