Receiving an inheritance during an IVA is not usually good news. The money received will have to be paid to your IVA company.
Included in this article:
- Inheritance received during an IVA is a windfall
- Will your IVA be paid early?
- Debt Management options if you are likely to get inheritance
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.