IVA Windfall Clause: What’s Classed as a Windfall In An IVA?
What Is a Windfall? #
Receiving a windfall is an exciting experience, and in most cases, it means you can do that DIY work you’ve been putting off or treat yourself to a luxury holiday and new car. But for people in a legally binding Individual Voluntary Arrangement (IVA), a windfall can impact their IVA payments and leave them – and their creditors – in no man’s land, making it crucial to understand this debt solution.
In this guide, we’ll discuss what’s classed as a windfall and how your insolvency practitioner might handle a sudden increase in your income.
A windfall is an amount of money you receive that isn’t a part of your regular sources of income. While very rare, you could receive a windfall in the form of a lottery or competition win, but for most people, it’s usually an inheritance or a redundancy payment.
Other windfalls can be an insurance payout or a significant cash amount gift from a family member or friend. Most windfalls are unexpected, and as they’re not a part of your normal income, you might think your improved situation won’t affect your IVA.
Unfortunately, a windfall will impact your arrangement in many ways. Let’s take a look at them.
Understanding Windfalls in an IVA #
A windfall is an unexpected amount of money received that isn’t part of your regular income. In the context of an Individual Voluntary Arrangement (IVA), a windfall can significantly impact the arrangement and its payments. Understanding how windfalls work in an IVA is crucial to ensure that individuals comply with the terms of their agreement and avoid any potential consequences. Whether it’s a sudden inheritance, a lottery win, or an insurance payout, knowing how these funds are treated can help you navigate your IVA more effectively.
How An Insolvency Practitioner Views the Windfall Clause #
Windfalls are almost always unplanned, and most practitioners will recognise that you had no idea you’d be receiving a lump sum. However, it is crucial to disclose all relevant financial information, including your bank accounts, to ensure transparency, but that doesn’t mean you’ll be able to keep the money.
Most IVA contracts have a set of written clauses, which protect both you and your creditors. As you owe money to people, your creditors will expect your insolvency practitioner to put any funds from a windfall into your IVA.
This means that you have a legal obligation to use your windfall for repayments, allowing your creditors to recover your debt quickly.
Types of Windfalls #
Windfalls can come in various forms, including:
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Inheritance money: Receiving money from a deceased relative’s estate.
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Lottery or competition wins: Unexpected winnings from games of chance.
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Redundancy payments: Compensation received when losing a job.
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Insurance payouts: Money received from an insurance claim, such as for critical illness or personal injury.
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Significant cash amount gifts: Large sums of money gifted by family members or friends.
These types of windfalls are considered unexpected and unplanned. As part of your IVA agreement, you are required to declare them to your insolvency practitioner. This ensures that any additional funds are used to benefit your creditors and help repay your debts.
How Does This Impact Your Monthly Payments? #
If you have an IVA and receive a windfall, you’ll have to put all the money into your payment plan, which is designed to ensure affordable monthly payments. Unless it’s a large amount of money, you’ll still have to continue with your monthly payments.
For example, say you owe £15,000, and you receive a windfall of £10,000. You’ll immediately reduce that debt to £5000 and continue to pay off the outstanding amount until your IVA is complete.
While this can be beneficial because it relieves you of debt quicker, some creditors might request that you pay interest for the remainder of your IVA – even if the windfall clears you of debt.
Suppose your windfall is enough to pay off the entire IVA, interest and insolvency practitioner fees. In that case, you’ll receive a certificate of completion, and anything left from the windfall will be transferred back to you.
Windfall Clause in an IVA #
The windfall clause is a provision in an IVA that requires individuals to put any windfall payments towards their arrangement. This clause is designed to ensure that individuals use any unexpected funds to benefit their creditors and repay their debts. Typically, the windfall clause states that any windfall payment exceeding £500 must be declared to the insolvency practitioner and used towards the IVA. This means that if you receive a significant sum of money, it will be used to reduce your outstanding debt, helping you to potentially complete your IVA sooner.
Are There Any Windfalls That Won’t Affect My IVA Payments? #
While most windfalls will affect IVA payments, there may be some exceptions. For example:
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Lottery wins: Depending on your financial circumstances, lottery wins may not be included in the IVA.
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Inheritances: The inclusion of inheritance money in your IVA can depend on your financial circumstances and the terms of your IVA agreement.
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Redundancy payments: If you are made redundant, the payment may not be included in the IVA, as you may need the money to cover daily expenses while searching for a new job.
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Insurance payouts: Payouts for critical illness or personal injury may be excluded from the IVA, depending on your financial circumstances and the terms of your IVA agreement.
It’s essential to consult with your insolvency practitioner to determine how a windfall will affect your IVA payments. They will consider your financial circumstances and the specific terms of your IVA agreement to provide guidance.
Consequences of Hiding Windfalls #
Hiding windfalls from an IVA can have severe consequences, including:
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Breach of the IVA agreement: Failing to declare a windfall can be considered a breach of your legally binding agreement.
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Termination of the IVA: Your IVA could be terminated, leaving you liable for the total debt owed before entering the IVA.
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Bankruptcy: You may face bankruptcy if your IVA is terminated due to non-disclosure of a windfall.
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Legal ramifications: Creditors may take legal action against you, including taking you to court over unpaid debts.
It’s crucial to be transparent and honest about receiving a windfall and to declare it to your insolvency practitioner as part of the IVA agreement. This ensures that you remain compliant with the terms of your IVA and avoid any negative consequences.
Are There Any Windfalls That Won’t Effect My IVA Payments? #
Your Individual Voluntary Arrangement has a strict set of rules that both you and your creditors have to follow. For example, creditors cannot contact you as long as you keep up with your minimum payments, and you’ll have to notify your insolvency practitioner about any cash lump sum you receive.
The windfall clause states that you must be honest and upfront. Otherwise, you can breach your agreement and will have to pay back the total amount with interest.
It’s also important to manage priority debts, such as council tax and rent arrears, as failing to do so can have serious consequences.
Luckily, your IVA agreement might state that certain windfalls cannot be included in your IVA. Lottery wins and inheritances almost always become part of the IVA, but redundancy and insurance payments could be excluded depending on your circumstances.
If you’re made redundant, you’ll need the money to cover your daily expenses while you search for a new job, so your insolvency practitioner will take your financial circumstances into account.
Any insurance payout that falls under the critical illness or personal injury category could be exempt from your IVA. Your insolvency practitioner will look at how much your treatment will cost and factor in your ongoing medical expenses.
Next Steps #
With any windfall, your personal circumstances will define whether or not you’ll have to add the cash amount to your agreed payments and end your IVA early. It’s best to understand the clauses in your agreement when you first agree to a proposal with your IVA company, including the details outlined in your IVA proposal.
Knowing where you stand in the event of unforeseen circumstances means you can plan ahead and explore other debt solutions if necessary. While some people don’t like to lose control over their finances, the quicker you pay off your unsecured debts, including payday loans, the sooner you can rebuild your credit rating.
If you’d like some free debt advice, please don’t hesitate to contact our friendly team. We’re members of the Insolvency Practitioners Association and can help you manage your creditors and regain your financial freedom.
Next Steps #
With any windfall, your personal circumstances will define whether or not you’ll have to add the cash amount to your agreed payments and end your IVA early. It’s best to understand the clauses in your agreement when you first agree to a proposal with your IVA company.
Knowing where you stand in the event of unforeseen circumstances means you can plan ahead. While some people don’t like to lose control over their finances, the quicker you pay off your unsecured debts, the sooner you can rebuild your credit rating.
If you’d like some free debt advice, please don’t hesitate to contact our friendly team. We’re members of the Insolvency Practitioners Association and can help you manage your creditors and regain your financial freedom.