Windfall during an IVA

Windfall during an IVA

If you receive a windfall during an IVA you normally have to pay it into the Arrangement. As a result the amount your creditors get back increases.

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What happens to a Windfall during an IVA?

A windfall is any sum of money or asset which becomes payable to you during the course of your IVA. Common examples are inheritance, funds released from the sale of a property or a redundancy payment.

Most compensation payments from claims you make against a third party count as windfalls.

If you receive a windfall the terms of your agreement will state it has to be handed to your Insolvency Practitioner (IP). The funds are then paid into your Arrangement in addition to your normal monthly payments.

Paying a windfall into your IVA doesn’t mean it will be paid off any earlier. You will simply pay back more of your debt then first anticipated. Your creditors get back more of the money they are owed.

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Can you keep any of a Windfall received during an IVA?

The terms and conditions of your IVA will dictate specifically what happens to a windfall. If the total amount you receive is less than £500 you may be able to keep all of it.

However if the amount is more than £500 it will normally have to be paid to your IVA Company in full. They are not obliged to let you keep any of the money.

If you have a specific financial emergency your IP may let you to keep part of the money received to pay for this. However they are not obliged to. You are unlikely to be given part of the cash just because your living expenses budget is tight.

One exception to the windfall rule is if you receive personal injury compensation for pain and suffering. You should be allowed to keep the full amount of this type of award.

Can a Windfall ever be used to settle an IVA early?

Although windfalls normally have to be paid onto your IVA there are some instances when they can be used to settle the Arrangement early. One example of this is where the amount received is large.

The funds may be sufficient to pay 100 percent of your original debt plus outstanding IP fees and statutory interest. If so the Arrangement will be completed immediately. You will be returned any excess.

Another is in the case of redundancy. Generally speaking redundancy money must be paid into your IVA. However if you are no longer able to work your creditors may accept this amount plus what you have already paid in as full settlement.

You should be able to keep the equivalent of 6 months take home pay from any redundancy money you receive. This is to fund your ongoing living expenses and IVA payment.

Is money lent from a Third Party a Windfall?

A third party such as a family member or friend may offer to give or lend you a lump sum to settle your IVA early. In these circumstances the money you receive is not considered a windfall.

This is because you are not entitled to have the money for any other reason than to settle your Arrangement. If your creditors agree your offer then the cash is made available. If they reject it is simply withdrawn.

Generally speaking the lump sum does not have to be handed over until the creditors have accepted the proposal. However to meet money laundering regulations proof will be required of the identity of the person offering it.

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38 thoughts on “Windfall during an IVA

    Jackson R says:

    I’m in the process of receiving a refund from HMRC in regards to overpaid tax is it classed as an asset or a windfall i’ve been given different info as to if it is or not?

      Hi Jackson R

      As a rule, a tax rebate is a windfall and will have to be paid into your IVA. This is certainly the case if you are now employed and taxed on a PAYE basis.

      If you are self-employed, it is a little more complicated. Whether or not you can keep the rebate will depends on how the Arrangement was originally set up and how the payment of tax was originally built into your business income and expenses calculation.

      My advice if you get a tax rebate is always disclose this to your IVA company. They will confirm whether you can keep it or whether it needs to be handed over. Doing this will avoid potential issues down the line if you are subsequently asked to hand it over but have already spent it.

    Judy says:

    I am currently in an IVA. I worked until I was 66 and am now retired. There is a possibility I might be awarded compensation as a result of state pension inequality rulings. In the rare event that I am awarded compensation for the injustice, would I have to give it all to the IVA or could I invest it in an annuity fund for a monthly pension?

      Hi Judy

      Given your compensation would be awarded as a result of a pension/income underpayment, I believe any such amount would fall under the IVA windfall rules. As such, your IVA company would be within their rights to demand that you hand it over to them.

      The effect of this would be simply to increase the overall return your creditors receive from your IVA. It would not reduce the length of the Arrangement unless the amount you receive is so high that it would enable it to be paid off in full.

      If you are likely to get a very large amount, one option you could consider is to keep hold of it but then terminate your IVA. Remenber, if you did this, you would still be responsible to paying your creditors. But it would still be sensible if the total you pay is less than what you would have to pay into your IVA (taking account of fees and and interest payable onto of your original debt).

    Stscey says:

    I am taking a former employer to tribunal for Maternity Discrimination and Constructive Unfair Dismissal. If I were to succeed at tribunal, would this be classed as a windfall?

      Hi Stacey

      The answer to this depends on whether or not any compensation you receive can be claimed by your IVA company as a windfall. I can say that compensation payments for other things (eg financial mis-selling – PPI) paid during an IVA is certainly considered a windfall and would be claimed by the IVA company. As such, I think it is highly likely that any compensation you receive from your action would be treated in the same way.

      That said, I am not a solicitor so I can’t be 100% of this. If your IVA company does claim the payment and you disagree with this, then depending on the amount you receive, you will need to review whether the IVA is still the right solution for you.

    Chloe says:

    Hi I am about o enter in to an IVA but I am currently in the process of agreeing a personal injury settlement. The case was I was ran over, sustained injury that affected my work for 13 weeks, with alot of pain, extensive rehab, and caused detriment to my degree and has resulted in me unable to qualify on time, and subsequently my mental health has been impaired through all of this. I have read that windfalls where the money is awarded for pain and suffering are likely not to be included and I can keep this money? What is your advice?

      Hi Chloe

      As a rule of thumb, compensation paid for pain and suffering (rather than loss of earnings) is not caught by the windfall clause of an IVA. As such as a general rule you should be able to keep such a payment.

      However, I would strongly recommend that you discuss this with the IVA company you are working with BEFORE you agree to start an IVA. If they agree that you will be able to keep the claim, then you must make sure you get this in writing from them so you can refer to it later.

      If they are unsure or can’t give you a straight answer, you might want to re-consider whether starting an IVA is a good idea.

    Peter says:

    Hi James,

    I am currently pursuing civil damages for a serious data breach where sensitive digital personal information was lost and was not recovered. The basis of the claim is for mental distress. This distress has raised as a result of losing the data and the future potential effects on my employment if the personal information resurfaces. This is a great misfortune and has the potential to ruin my life. Is this considered a windfall as it would be obtained due to a misfortune?

      Hi Peter

      From what you say it looks like a significant part of your claim is for potential loss of earnings / income. I would think that any damages paid on this basis would fall into the category of a windfall under the terms of an IVA. That said, it does seem quite an unusual case. As such you might find that your IVA company disagrees and allows you to keep any funds received. Ultimately it will be up to them to decide.

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