An IVA allows you to repay more to your creditors through the structure of the IVA compared to the return creditors would get if they made you bankrupt.
Because an IVA is a mutual agreement between you and your creditors, you keep more control over your financial affairs than you would otherwise get in bankruptcy.
The IVA also ensures you have the chance to put forward your proposals on how the equity in your assets ought to be introduced for the benefit of your creditors rather than, say, through a forced sale, as you would experience in your bankruptcy.
To ensure your IVA is conducted properly it will be overseen, or administered, by an Licensed Insolvency Practitioner (IP).
IPs are often accountants. It is up to the IP to ensure that each IVA is conducted along the terms laid out in the IVA proposal. They must make sure all parties are sticking to the IVA and fulfilling their side of the deal.
Once your IVA has been agreed by the necessary majority your creditors, it provides you with immediate protection.
It immediately stops your creditors from taking any further legal action against you for the recovery of your unsecured debts.
What’s more, all creditors are legally obliged to stop charging interest on the outstanding balances of your debt, once the IVA has begun.
It also ensures they refrain from adding late payment charges and other costs, which might otherwise have continued to increase the outstanding debt levels after the IVA had begun.
Each IVA has a fixed term of normally, 5 years with a possibility of a 12 month extension if your IVA is subject to an equity clause.
Once your IVA has successfully completed, any outstanding balances on your unsecured debts are written off by your creditors under the terms of your IVA, even though you may have only repaid a fraction of your original debt.
What is a Windfall
A ‘financial windfall’ is the phrase used to describe the receipt of unexpected funds that you would not normally receive through your daily activities.
A windfall may arise by good fortune, such as a Lottery win , but it can also arise by misfortune. Redundancy payments, an Inheritance or Insurance payouts are also financial windfalls.
IVA Windfall Clause
A windfall will be unexpected, but that does not mean that it will be ignored by your creditors.
Most IVA’s will have a clause in your it which deals with a windfall if one should happen.
The creditors will expect 100% of the windfall to be introduced into the IVA and given to the Insolvency Practitioner for the benefit of all creditors.
What’s more, the introduction of the windfall will not impact on future payments into the IVA fund either and most people who receive a windfall will pass it to their IP and still continue paying into their IVA as normal.
That is unless the windfall was of such a large amount as to enable the immediate repayment of all the original debts, before the IVA began.
If this is the case the creditors will expect the full original debt to be repaid and any outstanding IP costs to be paid too.
In addition, creditors will reserve the right to charge statutory interest on the outstanding balances for the full duration of the IVA.
Any remaining funds will then be passed back to the individual and the IVA will be considered to have completed successfully and the IP will issue a certificate of completion.
Exceptions To The Windfall Clause
Whilst the windfall clause will obligate you to notify your IP of receipt of a windfall, it is not always the case that the windfall itself will become subject to the IVA. As with most rules, there are some exceptions, particularly when the windfall has been received through some form of misfortune.
Redundancy payments would be an obvious example. The IVA protocol allows for an amount of the redundancy payment to be retained to cover living costs during the search for re-employment.
Insurance claims also provide an exception to the windfall clause. The element of any payout awarded for pain and suffering can be retained by the injured party, but any payout for loss of earning must be surrendered to the supervisor.
Similarly, people receiving insurance payout under a Critical Illness policy may be allowed to retain some of the funds to pay for treatments or therapy, at the desecration of the supervisor and any mitigating circumstances should be brought to the attention of the Insolvency Practitioner as soon as possible.
If you are in an IVA and require further information regarding specific areas about windfall clause, you should call your IP.