If you are in an monthly payment IVA, it will typically last 5 or 6 years. If you receive a windfall during that time what happens to it and can you settle your IVA early?

Jump to contents:

• How is a windfall treated during an IVA?
• Can you keep any of a windfall you receive?
• Exceptions – Windfalls that settle your IVA early
• Settle your IVA early – The Benefits

Receiving a windfall during your IVA? Give us a call (0800 077 6180) or complete the form below to speak to one of our experts.

How is a Windfall treated during an IVA?

A windfall includes any amount that becomes payable to you during your IVA. Examples are things like a redundancy payment, inheritance, a compensation payment or equity released from the sale of a property.

The terms of your IVA will almost certainly state that any windfall should be paid to your creditors on top of your normal IVA payments. Under normal circumstances receiving this money would not settle your IVA early. You must continue making your normal monthly payments and your creditors and a larger percentage of your debt will be repaid overall.

The only time when a windfall will settle your IVA early is if the amount you receive is large enough to pay off 100% of the debt you originally owed (less the payments you have already made. PLUS 100% of your IVA company’s fees PLUS interest charged on your total debt at 8% pa from the start of the arrangement.

You can only settle your IVA early if the cash sum comes from a third party such as a family member or friend. The money is provided on the understanding that it will be used to settle the arrangement.

Can you keep any of a Windfall you receive?

Naturally you may want to keep some of any windfall you get during an IVA. Indeed you may actually have a specific reason why you need some of the funds. This could relate to your heath or perhaps a family situation.

You are able to keep small amounts. If the windfall is less than £500 you will be able to keep it. But if it is more than £500 then all of it will normally be paid to your IVA.

If you are suffering particular hardship (for example your boiler has broken down) your IVA company might allow you to retain some of the funds. However they are not obliged to do this.  It would be at your IPs discretion.

One exception is where you have been awarded personal injury compensation specifically for pain and suffering. In general you will be allowed to keep this kind of Windfall.

Exceptions – Windfalls that settle your IVA early

Whilst usually windfalls must be paid into an IVA, there are a couple of scenarios where they can be used to settle your IVA early.

The main exception is when the windfall is particularly big. It would have to pay back the original debt, less payments you had already made, plus statutory interest, plus the remaining IP fees.

Another exception would be a using a redundancy payment. This would would only be when you are then unable to work. Redundancy payments usually have to be paid into your IVA. However you may be able to keep 6 months worth of your pay to help you whilst you are looking for a new job.

If you are made redundant and can no longer work, creditors may accept your redundancy payment as a final settlement of your IVA.

Settle your IVA early – The Benefits

There are a number of good reasons why you may want to finish your IVA early. You will be released from the restrictions of the arrangement. You will be able to keep your disposable income and any increases in income will be yours. In addition most windfalls that you receive in future.

You may need to consider this option where your circumstances have changed. Perhaps your income has reduced or expenditures risen, so your monthly payments have become unaffordable.

If you want to move house you may find you struggle because of the negative impact your IVA has on your credit rating. Settling early will mean you can start repairing your credit rating as soon as possible.

It is difficult to get a mortgage to buy a new property until your IVA is completed or settled. If you are looking for a mortgage either during or after an IVA give us a call (0800 077 6180) or complete the form below to speak to one of our experts.