If you get an inheritance during an IVA, it will be treated as a windfall. As such the money would have to be paid into the arrangement.
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- Inheritance in an IVA is treated as a windfall.
- Could I keep any of my inheritance payment?
- Should I delay my IVA?
- Could a windfall finish my IVA early?
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Inheritance in an IVA is treated as a Windfall
We explain what will happen if you receive an inheritance payment from a will or trust while you are in an Individual Voluntary Arrangement (IVA).
One of the rules of an IVA is that if you receive a windfall payment while you are in the arrangement this must also be paid in for the benefit of your creditors.
An inheritance payment is unquestionably categorised as a windfall. As such if you are written into someone’s will and they die while you are in the Arrangement any money you receive must be paid into it.
Despite this there might be circumstances where you are allowed to keep some of the inheritance that you have received or even use it to to settle your the agreement early. We will investigate these options in more detail.
Could I keep any of my windfall payment if I really need it?
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 all of the inheritance money you receive has to be paid into the Arrangement. However your insolvency practitioner does have the discretion to allow you to keep some of the money if they feel you have a reasonable requirement.
As such if you 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.
It is absolutely critical that you do not spend of the inheritance money you have received without first getting agreement for this with your IP in writing. Spending any of the money without your IPs agreement could lead to the failure of your IVA.
Should I delay my IVA until after I have received my inheritance payment?
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 of it to pay for pressing expenditures if you wish.
The only thing you must not do is pay off any of your creditors (especially friends and family) and then try to start the Arrangement. This would be considered a preferential payment and could cause issue getting the agreement of the remaining creditors.
If you feel that you might inherit some money in the next five years but are not exactly sure if or when this will happen you might want to delay starting an IVA but you are still under pressure from your creditors. In this situation you could use a Debt Management Plan (DMP) to manage your debts on a temporary basis while you wait for the inheritance payment.
Alternatively it might, in some specific cases, be better to consider the option of Bankruptcy because it is likely that you will only be bankrupt for 1 year. After you are discharged from your bankruptcy any inheritance you then receive will be yours to keep. As such you are only at risk of losing your inheritance for 12 months compared to an IVA where this would be a risk for the next five years.
Could an inheritance mean that I can finish paying my IVA early?
The fact that you have paid your inheritance money into your IVA does not mean that it will be paid off any faster. Normally 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.
If you receive a very large amount of inheritance which is enough to pay off all your original debt (not just the amount you agreed to pay back during the agreement) then you will be expected to do that. Of course once the payment has been made the Arrangement will then come to an end and there will be no requirement for you to then continue making your monthly payments.
The only time when you might be able to use an inheritance payment to settle an IVA early is if this payment coincides with a change in your financial circumstances meaning that you are no longer able to make your monthly payments.
In this scenario, it is conceivable that a variation of your Arrangement could be agreed with your creditors to allow it to be settled early with no further payments required.
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