All of us love things which we don’t have to work for. Receiving an inheritance also feels the same way. But if you are receiving an inheritance when you are in an IVA agreement, the terms might not be the same.
What is an Individual Voluntary Arrangement? Why do the terms differ when receiving an inheritance in an IVA and how to manage those terms? I am going to answer all of these questions right now!
What is an IVA?
Individual Voluntary arrangement is a formal legal agreement of debt solution. It is drawn up in order to avoid bankruptcy. The IVA fulfills the purpose of finding ways to pay back the lenders of the signee through an Insolvency Practitioner (IP).
IVA can be done through insolvency firms and companies, which provide debt advice and debt management and are authorised and regulated by the financial conduct authority. IVA holds its own benefits and drawbacks.
To know everything in detail regarding an IVA, click here.
How Does It Affect You Receiving an Inheritance?
IVA has the sole purpose of avoiding bankruptcy when you enter an Individual voluntary agreement, there are some restrictions placed upon your finances.
Any inheritance that is coming your way when you have entered an IVA is treated as a windfall. The windfall clause in the IVA states that any unexpected gain or any extra money should be used in favour of your lenders to pay back the debt.
That means that if you receive any inherited money, that money will be used to pay off your monthly payments of debt.
This includes any monetary gain that is received in inheritance, such as, property, cash, and jewels. The money will be handed over to your IVA company, in order to pay back creditors.
Do You Have to Pay the Inheritance Money to your Creditors?
Yes! You will have to pay the inheritance receiving back to your lenders because if you have signed an IVA, that means you are legally and formally liable to follow its rules and arrangements.
Not paying the money to your IVA company might cause some serious problems ahead of your debt solution plan. I would personally advise you to pay your claimants the inheritance receivings because in the end your debt will be deducted and you will move one step ahead to a debt free life.
Apart from that if the windfall sum is smaller than £500, it is not usually paid into the IVA agreement.
How Can You Keep the Inheritance Money?
There is no legal way to keep the full sum of the inheritance, however, you might be able to get a bite out of it. Your IP has discretionary power and if they deem appropriate, they might let you keep some money.
The IP will usually look at your current financial situation and hence decide how much money is relevant for you. Don’t expect any big amount coming your way, usually, the IP will give away sums for small miscellaneous purposes.
What Happens If You Inherit the Money Before an IVA?
If you inherit anything with monetary value before you have signed an IVA, the situation is different. You will not have to pay the inheritance amount to your IVA company because, at the time of receiving the inheritance sum, you were not in any agreement to pay it to your lenders.
Therefore, you are not legally allowed to keep the sum that you receive in any kind of inheritance.
Should You Delay an IVA when You are Getting the Inheritance?
If you want to keep the inheritance, you might want to delay your IVA plan. Doing that you will be able to keep all the inheritance for yourself and you will not have to pay the IVA company.
One thing that you need to take care of is that after receiving the IVA money, don’t pay any of your creditors because it will be implicated as a preferential payment. This could cause you some problems if you are still looking forward to your IVA.
The other creditors who didn’t receive any payment might not agree to your IVA proposal due to this.
Is it Illegal to Hide Inheritance Money from IVA?
As I told you before, IVA is a legal agreement and it has some legal restrictions and implications upon your financial life. Hiding inheritance from IVA will be a breach of the windfall clause that is present in an IVA.
Hence, it is technically illegal to hide funds when you are in an IVA agreement.
There are some consequences of hiding the received legacy from your IVA, such as:-
The breach of a legal agreement means that you might have to face some sort of legal lawsuit, in this case, it will surely increase your costs and if the decision comes against you, you will lose the inheritance as well, which you tried to hide.
Termination of Your IVA Agreement
Once the contract has been breached, there will be no trust between your creditors and your IVA company, hence, the IVA proposal or arrangement might come to an end. In this situation, you will have to pay back your creditors by any means.
Bankruptcy is a major consequence of hiding money from your IVA, as I have mentioned that hiding money might get your IVA terminated. Therefore, if you are not able to pay back your lenders, you might have to declare yourself bankrupt.
Bankruptcy has some serious long term implications on your credit score and your financial life. It is really hard to gather your financial life after you have been bankrupt.
What if I receive an Inheritance after IVA completion?
Once you have completed your IVA and it has ended, there are no restrictions on you. The agreement is closed and hence whatever funds you receive you will get to keep 100% of that money.
Can I keep some part of the inheritance money?
It depends on your IP, they will decide how much money is appropriate for your keeping, however, due to the windfall clause, all of the inheritance is supposed to go towards your debt clearing and you monthly payments to the debtors.
Does Inheritance help Complete IVA earlier?
Yes, inheritance might be able to help you complete your arrangement earlier. If the inheritance is greater than your debt amounts, you can pay your debt in a lump sum and get to hold the remaining legacy.
Apart from that if you are paying off your debts due to an unexpected or unplanned income, it will deduct your debts and monthly payments and make you finish your IVA earlier than planned.
To find more about how to pay your IVA earlier, please refer to this article.
Do I have to tell my IP about the Inheritance?
Yes! You should tell your IP regarding the legacy you have received. It will save you from a lot of complications further ahead and makes things easy for you and your creditors. The IP will also surely give you sound debt advice
I would personally advise you to tell your IP about the windfall money as soon as possible.
Which Debt Management Company is The Best?
There are many companies that are working extremely well in this field. You can choose one of them.
Whatever company you choose just make sure that it is authorised and regulated by the financial conduct authority of the UK.
Getting unexpected things is a blessing at times and in order to appropriately take care of that blessing, you have to use it in the right way.
Inheritance might be a blessing in disguise in an IVA agreement even if you don’t feel like paying it to your IVA company.
In the end, it might help you take a step closer to a debt free life!