If you receive a windfall or an inheritance while you are in an IVA, you will usually need to declare it, and some or all of it may go towards your debts. An IVA is a legally binding agreement, and part of the deal is that money that arrives unexpectedly is shared with your creditors rather than kept in full. Being open about a windfall is not optional, but it also does not mean you automatically lose everything you have been left.
Exactly what happens depends on the wording of your own arrangement, the size of the windfall and when it lands. The rules can feel daunting, so it helps to understand them before anything actually arrives.
The short answer
- Most IVAs contain a windfall clause, so lump sums such as inheritance, lottery wins, bonuses and some refunds must be declared to your insolvency practitioner.
- Windfalls above a small threshold (often around £500 in a single sum) usually have to be paid into the arrangement.
- Declaring a windfall is a condition of your IVA. Hiding it could put the whole arrangement at risk.
- A windfall could clear your IVA early, but it does not always mean paying every penny you were left.
What counts as a windfall?
A windfall is money you receive that is not part of your normal income. Because it was not included when your monthly payments were first worked out, your creditors are entitled to a share. Common examples include:
- An inheritance from a relative's estate
- A lottery or competition win
- A PPI refund or compensation payment
- A tax rebate or a redundancy payment above your normal wages
- A gift of a lump sum from a family member
Regular pay rises and overtime are treated differently. Those are usually picked up through your annual review rather than the windfall rules, and they may lead to a modest change in your monthly payment instead.
How windfalls are treated
Most IVAs based on the standard industry protocol include a windfall clause. Typically, any single windfall over a set amount — frequently around £500 — must be reported to your insolvency practitioner (IP) and paid into the arrangement. Smaller amounts below that threshold can usually be kept.
The money that comes in tops up what your creditors receive. It does not usually increase the total they are owed; it simply helps meet more of the existing debt. That is an important distinction, because it means a large windfall can sometimes settle your IVA in full ahead of time.
Inheritance during an IVA
Inheritance is one of the most common windfalls people worry about. If someone leaves you money or assets while your IVA is running, you generally need to tell your IP. Whether the whole inheritance is required depends on its size and on how much of your debt is still outstanding.
If the inheritance is smaller than your remaining debt
The funds are usually paid into the IVA and shared among your creditors alongside your ongoing monthly payments. Your arrangement then continues as normal.
If the inheritance is larger than your remaining debt
You may be able to settle the IVA early. In that case you would only pay what is needed to complete the arrangement — including the IP's fees — and you could keep the rest. This can be a route to exiting an IVA early, though it is worth taking advice first.
What you must do when a windfall arrives
- Tell your IP promptly — do not wait for your next review. Your IP can explain exactly how your agreement treats the payment.
- Keep the money safe until you have agreement on what happens to it.
- Ask for it in writing so you have a clear record of what has been agreed.
Your IP works for the arrangement as a whole, not just for your creditors, so they can guide you on the fair treatment of the money under your specific terms.
Could a windfall end my IVA?
Sometimes, yes. A large enough windfall may let you offer a lump sum that completes the arrangement. Whether that leaves you better off depends on your circumstances. Ending early can mean less time with the restrictions of an IVA, but the impact on your credit file is broadly the same, as an IVA stays on record for around six years from its start date — see how an IVA affects your credit rating for more.
If a windfall is not enough to settle the IVA but your finances have improved, it might instead be combined with a change to your monthly payments. Every situation is different, which is why it is worth talking it through. Free, independent guidance is also available from MoneyHelper.
How IVA Advice Online can help
Coming into unexpected money should feel like good news, not a source of stress. If you are unsure how a windfall or inheritance affects your arrangement, or you are weighing up whether it could help you finish early, our advice is free and there is no obligation. Get in touch and we will help you understand your options clearly.