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.
Included in this article:
- What happens if you get inheritance during an IVA?
- Can you keep any of the money?
- Will your IVA be paid off early?
- Should you delay starting an IVA?
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What happens if you get inheritance during 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.
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 your agreed 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.
Struggling to get your head round all of this? We can help. Call us (0800 077 6180) or complete the form below. The advice is free and confidential.
Can you keep any of the inheritance money?
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 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.
Will your IVA be paid off early if you 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 you delay starting an IVA if I know I will get 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.
Received inheritance during your IVA and need help? Call us (0800 077 6180) or complete the form below. The advice is free and confidential.
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Hi. We believe my sister in law is delaying probate etc as she is taking her time in signing forms for the solicitor and being very awkward in moving forward selling the property. Her IVA completes in feb next year. Does the solicitor definitely have to inform the IVA company, do they do a search on beneficiaries?
Hi Amanda
If someone inherits money during their IVA, it should not matter whether they receive the money either during or after their IVA is completed. The funds should still be paid to the IVA company. If the money is received after the IVA is completed, it can still be claimed by the IVA company as an after acquired asset.
If the IVA is already completed, the solicitor still has a duty to pay the money to the old IVA company. However, they will only do this if they are aware that the Arrangement was in place. If it is already completed and the person’s name has been removed from the insolvency register, the solicitor may not discover that the IVA existed and therefore pay the money to the individual as normal.
It sounds as though your sister-in-law is trying to buy time in the hope that this will happen. However, she needs to be aware that depending on the IVA company she is with, she is unlikely to get her completion certificate (and her name removed from the register) for around 6 months after her last payment is made. As such her name is likely to be on the register until at least Aug 22.
Hello.
My step sister was about to receive 50k out of her late uncle estate. While the estate was going through probate she entered an IVA without mentioning about her future windfall. When her IVA proposal was approved by her creditors she changed the will and transferred her share in her sister’s favour. Would it be seen by creditors as a false representation?
Hi Mykhailo
As a general rule, inheritance received while an IVA is in place (or beforehand where the funds are subsequently paid after the IVA has started) is treated as a windfall and should be paid into the arrangement. Was the Will changed meaning your step sister was no longer a beneficiary prior to her uncle’s death? If so, I don’t think there is anything her creditors can do about it.
That said, if as you suggest, she was able to change the will after her late uncle’s death, I am sure that creditors would not be happy if they found out about it. I am not a solicitor, but as far as I am aware such a change is not legal and might be challenged if any creditors ever found out about it.
Hello
I am currently 2 years into an iva, I am just about to receive an inheritance from my late mum & dads estate, probate has been approved and I am one of the executors and beneficiary on the will, I have already informed my Iva company and they have told to let them know as soon as I receive the funds from the sale of the house.
Will the money be paid directly into my bank account as requested on the conveyancing forms?? Or will my solicitor pay all the money that I owe to my creditors? My Iva company has told me that they will offer the creditors the amount which is left on my Iva £4000 originally it was £6000, my original debt is £32,000 my inheritance is approximately going to be £62,000, my Iva company has informed me that I will not have to pay the whole amount of £32,000 , please could you tell me if this is correct?
Hi Chris
The first thing I would say is that all IVA companies are different. They have a relatively free rein to decide how they will proceed when situations like yours come up. As such, if they have told you that they will can use a relatively small amount of your expected inheritance to try and settle your IVA, I have no reason not to believe them.
That said, under normal circumstances, inheritance is treated as a windfall. As highlighted in the above article, the IVA company would be obliged to use the funds to pay off 100% of your original debt (less payments already made) plus their fees. As such you would end up loosing a considerable amount of the money you are due to receive. However, if your IVA company have chosen to act differently, that is their business and they can do so given your creditors agree.
In terms of where the money is to be paid, if your solicitor discovers you are in an IVA, they will be bound to write to your IVA company first to get confirmation about what to do. You might want to pre-empt this by asking your IVA to confirm in writing that the money should be paid to you first. If they are willing to do this, then you can forward the letter to your solicitor and avoid any delays once the funds are available.
Hope this helps.