Inheritance if you are in an IVA

Inheritance if you are in an IVA

Receiving an inheritance during an IVA is not usually good news. The money received will have to be paid to your IVA company.

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Inheritance received during an IVA is a windfall

Inheritance received while you are in an IVA is classed as a windfall. This means if you are left a bequest in someone’s will, the cash you ultimately get has to be paid to your IVA company.

Even if the inheritance money allows you to pay back the amount you agreed to pay into the Arrangement in full, you still have to continue your monthly payments. The effect of paying in the extra money is simply that your creditors will get even more of their original debt back.

The rules are the same if someone dies during your IVA but your bequest is not actually given to you until after you have finished paying the Arrangement. The IVA company is likely to delay the issue of your completion certificate until the cash has been handed over.

You can’t refuse to accept an inheritance payment. In other circumstances, you may have an option to disclaim the bequest as if you had already died. However this is not possible if you are in an IVA.

Will your IVA be paid early?

Generally speaking, your IVA will not be paid off early if you receive inheritance unless the amount you get is large. This is because when you are in an IVA, the amount you pay back to your creditors can increase if you get a pay rise or windfall.

The agreement will state that where extra funds allow, you have to pay back 100% of the original debt you owed. In addition you have to pay the IVA company fees plus interest on the original debt of 8% from the start date of the Arrangement.

As a result, the only time your IVA will be paid early is if you receive an inheritance large enough to pay this total amount with some to spare. If this happens, your IVA will be completed and any extra funds returned to you. If the amount received is not sufficient to cover this total, you will have to continue making your ongoing monthly payments as normal.

Receiving inheritance while you are in an IVA will increase the amount you repay towards your debt. You could even end up paying more than you originally owed.

Debt Management options if you are likely to get inheritance

Remember, a standard monthly payment IVA will last for 5 years. If you think it is likely that you will get a substantial inheritance payment within this time, think carefully before using this debt solution.

As an alternative, you should consider using a DMP (Debt Management Plan). This will give you breathing space from your creditors by reducing the payments to an affordable amount. However the key difference is if you receive inheritance during the Plan, it is yours to do with what you want.

You can choose to keep all the money and continue with the Plan. Alternatively you could decide to use some of it make early settlement offers to your creditors. Either way, unlike being in an IVA, you remain in control of the extra funds you have receive.

If you are likely to get a substantial inheritance in the next 5 years, an IVA may not be a sensible option. Give us a call (0800 011 4712) or complete the form below for more advice.

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2 thoughts on “Inheritance if you are in an IVA

    Nicola says:

    Hi guys.

    Me and my sister got left our mothers house which is legally in my sister’s name but has agreed it is split evenly between us. She now wants me to buy her out. The house is valued an its around £100,000. I’ve lived in the house with my mum since I was born an have paid her rent for 11yrs as well as renovated it over this time.

    But around 18 months ago me an my partner had no option but to apply for iva each as we both had credit cards an debt. At the time it was r only option then. Now I have £50k in the property and my sister wants me 2 buy her half 4 the same amount. Is there anyway I can get a mortgage or loan?

      Hi Nicola

      It might be possible for you to get a mortgage to buy out your sister. But this situation is more complicated than you may think. If you do agree that you have 50% ownership of the property this would be a windfall. As such, you should inform your IVA company about it. They would then need to incorporate your £50k of equity into your IVA. It is possible that your IVA company would demand the introduction of an equity clause in the the agreement.

      In addition, in order to get a mortgage to buy out your sister’s half, you would also need to raise sufficient funds to pay off your IVA. No mortgage company would lend to you without agreement that your IVA would also be settled in the process. As such, before doing anything you would need to discuss the situation with your IVA company and ask them how much extra (over and above the £50k for your sister) you would need to raise to do this.

      The outcome of all this is that you would have to raise more than £50k. As a rule of thumb, the maximum you would be able to borrow is around 4 x your gross annual income. So this is something else which needs to be factored into your decision making.

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