What happens if I receive a windfall payment during my IVA?
When you're in debt and using either an IVA or a Debt Management Plan as a solution, its natural to dream of a large windfall payment coming your way.
We all hope that one day our numbers will come up on the National Lottery and all our financial problems could be solved.
This of course is not very likely to happen with the odds of a large win at 14 million to 1 and, unfortunately, the more common £10 win for three numbers wouldn't be enough to settle your IVA or DMP.
There are, of course, other reasons why you may become a beneficiary of a financial windfall, other than through gambling on the lottery.
Indeed, most people receiving a large windfall will do so as a result of more somber circumstances, such as through a redundancy payment, a critical illness insurance policy payout, or through an inheritance - as a beneficiary of a will.
Windfalls in an IVA
If you receive a windfall whilst you're in an IVA, you are obliged to inform your IP.
Almost without exception, contribution based IVA proposals contains a standard 'windfall clause' which legally obliges you to pay any windfall into your IVA fund.
Your IVA obliges you to repay as much of your debt as possible, even in circumstances where you have benefited from an unexpected windfall payment.
Irrespective of the reason for the windfall, so long as it is during the IVA, your creditors will insist it is transfered to the IP for their benefit.
The exceptions to this clause are related to insurance payouts.
Creditors can't take the element of an insurance award that's related to 'pain and suffering' payouts.
Also, some critical illness policy payouts will be partially exempt if there are ongoing medical costs for treatment and care.
Redundancy during an IVA
If you receive a redundancy payment during your IVA, your IP will allow you to retain the equivalent funds to 6 times your most recent monthly income, with the remainder being surrendered into the IVA fund.
These funds are to be used to sustain your needs whilst you seek re-employment.
If you are able to find employment before the 6 months has elapsed, you will be expected to surrender the remaining funds from your redundancy, for the benefit of your creditors.
'Full and Final' settlements
In some circumstances, it may be possible to use a windfall payment to bring the IVA to an early conclusion.
Using funds that arrive through a redundancy payment would be a good example of how, in some circumstances, creditors might be prepared to take the redundancy as a full and final settlement of the IVA.
It is always advisable to discuss such options with your IP if the situation rises, especially if the windfall is large enough and there's a real chance of finishing your IVA early.
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