If you get an inheritance during an IVA you may not be able to keep these funds. The money will first be used to pay off your debt.
Jump to article contents:
- How is inheritance treated in an IVA?
- Can I keep any of my inheritance payment?
- Could my IVA finish early?
- Should I delay starting my IVA?
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How is inheritance treated in an IVA?
Inheritance is categorised as a windfall. If you receive a windfall payment while you are in an IVA this must be paid into the Arrangement for the benefit of your creditors.
If you are written into someone’s will and they die while you are in the plan, any money you receive must be handed over to your IVA company.
As a result your creditors will receive more overall and have to write off less of your debts. You will still have to continue with the agreed IVA monthly payments.
You cannot hide the fact that you will receive inheritance from your IVA company. The solicitor dealing with the estate is legally obliged to inform your Insolvency Practitioner.
Can I keep any of my inheritance payment?
One of the most common questions about an inheritance payment received during an IVA is whether you will be able to keep any of the money to help pay for urgent expenditures.
The rules say that you should pay all the inheritance money you receive into the Arrangement. However your insolvency practitioner does have the discretion to allow you to keep some of the money. This could be if they feel you have a reasonable requirement.
You might really need some cash to repair your car or perhaps your boiler at home. It is possible that your IP will allow you to retain the necessary cash to pay for this. However this is by no means certain and will depend on the individual circumstances surrounding your situation.
You must not spend any of your inheritance money before getting agreement with your IP. This could lead to the failure of your IVA.
Could my IVA finish early if I get Inheritance?
Normally when inheritance money is paid into an IVA the agreement is not paid off any faster. You will have to keep on making your regular payments until the end of the Arrangement.
The extra inheritance money will simply increase the amount that is paid back towards your debts overall. The amount written off is reduced.
The only time your IVA would be completed early is if the amount received is very large. There would have to be sufficient to pay off the total of your original debt (less the payments you already made) plus the insolvency practitioners fees plus interest charged at 8% pa on the debt from the start date of the Arrangement.
In these circumstances the Arrangement would then come to an end immediately and there would be no requirement for you to continue making your monthly payments.
Should I delay starting my IVA if I know I am getting Inheritance?
If you receive an inheritance payment before you start an IVA it will be yours to keep and you can do what you want with the money. As such, you can use some or all of it to pay for pressing expenditures if you wish.
The one thing you must not do if you are still planning to start an IVA is pay off any of your creditors (especially friends and family). This would be considered a preferential payment and could mean your remaining creditors reject the IVA proposal.
If you think you will inherit some money but are not exactly sure when, you might want to delay starting an IVA. However you will still be under pressure from your creditors. In this situation you could use a Debt Management Plan (DMP) to manage your debts temporarily while you wait for the inheritance payment.
Where inheritance is a possibility sometime in the future you could consider Bankruptcy. You would only be bankrupt for one year. You are only at risk of losing your inheritance if the individual who leaves you the money dies during this time.
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