An Individual Voluntary Arrangement is a formal debt solution that helps people in England, Wales and Northern Ireland repay what they owe through a single, affordable monthly payment over a set period - typically five to six years. But what happens if you come into money unexpectedly while your IVA is still running? Whether it is an inheritance, a work bonus, a compensation payout or a lottery win, receiving a lump sum during an IVA is something your Insolvency Practitioner needs to know about straight away.

Here is exactly what happens, step by step.

You Must Inform Your Insolvency Practitioner Immediately

The very first thing you must do when you receive or expect to receive any windfall is inform your Insolvency Practitioner without delay. This is a legal obligation under the terms of your IVA. Failing to disclose a windfall is considered a breach of your arrangement and could have serious consequences, including the failure of your IVA entirely.

Your Insolvency Practitioner acts as the supervisor of your arrangement and is responsible for ensuring that creditors receive what they are owed. Any change in your financial circumstances - including receiving money - must be reported as soon as you become aware of it.

Your IVA Includes a Windfall Clause

Almost all IVAs in the UK include what is known as a windfall clause. This clause sets out the rules around any money you receive above a certain threshold during the arrangement. Under this clause, if you receive a lump sum of more than a specified amount - typically around 10% of your total original debt - the money must be paid into your IVA.

This money is then distributed to your creditors in the same way as your regular monthly contributions. In some cases, a significant windfall can clear the remaining balance of the IVA entirely, bringing the arrangement to an early end.

How Much of the Windfall Do You Keep?

This depends on the size of the windfall and the specific terms of your IVA. If the amount you receive is small - generally below the windfall clause threshold - you may be allowed to keep it without any impact on your arrangement.

If the windfall is above the threshold, your Insolvency Practitioner will assess the amount and determine how much must be paid into the IVA. In some cases, you may be permitted to keep a portion of the money, particularly if there is a legitimate reason such as covering essential costs or repairs. However, this is decided on a case by case basis and is not guaranteed.

Can a Windfall End Your IVA Early?

Yes - if the windfall is large enough to clear your remaining IVA balance in full, your Insolvency Practitioner can declare the arrangement complete ahead of schedule. This is known as an early completion and means you will be released from the IVA sooner than originally planned.

Any debt that was included in the arrangement and remains outstanding after the windfall is applied will be written off, as with a standard IVA completion. This is one of the most significant benefits of the IVA structure.

What Counts as a Windfall?

Common examples of windfalls that must be disclosed during an IVA include the following.

1. An inheritance received from a deceased relative or friend, even if the estate has not yet been settled.
2. A work bonus, commission payment or profit share that is above your usual income.
3. A personal injury compensation payout or legal settlement.
4. A lottery or competition win above the threshold.
5. A cash gift from a family member or friend above the specified limit.
6. Proceeds from the sale of an asset that was not included in your original IVA proposal.

If you are unsure whether something counts as a windfall, always check with your Insolvency Practitioner before spending or transferring the money.

What Happens If You Do Not Disclose a Windfall?

Concealing a windfall from your Insolvency Practitioner is a serious matter. It is a breach of the terms of your IVA and could result in your arrangement being terminated. If your IVA fails, your creditors regain the right to pursue the full original amount owed, including any interest and charges that were frozen during the arrangement.

In serious cases, concealing a windfall could also be treated as fraud, which carries its own legal consequences. It is never worth the risk.

Does Receiving an Inheritance During an IVA Affect the Estate?

If you are named as a beneficiary in someone's will and they pass away while you are in an IVA, the inheritance must be declared. Your Insolvency Practitioner will contact the estate's executor to arrange for the funds to be paid into your IVA directly.

It is important to note that you cannot refuse an inheritance to avoid it being included in your IVA. Deliberately rejecting an inheritance to keep it out of an arrangement is treated as misconduct and can have serious consequences.

Planning Ahead

If you are approaching the end of your IVA and are expecting to receive money in the near future - such as through a pending compensation claim or an expected inheritance - it may be worth discussing the timing with your Insolvency Practitioner. While you cannot manipulate when money arrives, understanding how it will be treated can help you plan accordingly. For impartial guidance on managing your IVA, Debt Advisory Services offers free advice to residents of England, Wales and Northern Ireland.

For a full overview of how an Individual Voluntary Arrangement works, including eligibility, costs and what to expect at each stage, Debt Advisory Services provides detailed guidance for residents of England, Wales and Northern Ireland.