Coming into an inheritance can be a significant financial event in your life. Often unexpected and sometimes more substantial than you may have thought, these windfalls can have the ability to alter your financial outlook and even change your life.
However, if you’re in debt and are using a debt management solution, such as an Individual Voluntary Arrangement (IVA), to help you manage the situation, you might be concerned or confused about whether your inheritance could be claimed to pay off your creditors.
In this guide, we take a look at the intricacies of IVAs when it comes to dealing with windfalls such as inheritance, and what you might need to consider if you’re thinking of entering into one of these agreements.
Can I keep my inheritance in an IVA?
Put simply, it depends. If you inherit cash or valuable assets from someone’s estate while you are in an IVA, you typically will be required to use this windfall to contribute towards your repayment plan, but the specifics will ultimately come down to the unique IVA framework outlined in your agreement.
This is to say, as a rule your IVA agreement will contain a specific clause that outlines how windfalls such as inheritances need to be handled. For this reason, upon receiving an inheritance, it’s essential that you inform your Insolvency Practitioner (IP) promptly. They will explain what you need to do and ensure you remain fully compliant with the terms of your agreement.
What happens if I receive a windfall before starting an IVA?
If you come into a windfall prior to entering into an IVA, it’s important to remember that once you start your IVA creditors may request that these additional funds are used to start to make your repayments. As discussed above, this will depend on the terms of your agreement when you enter into it.
Additionally, it’s essential to note that if you have spent funds from a windfall before you enter the IVA—funds that in theory could have been used to pay off some or all of your debts—creditors have the right to reject any proposed IVA. This is especially likely if your creditors have reason to believe that the money you’ve spent should have been paid to them.
If you do receive a lump sum that could be used to repay some of your debts prior to entering into an IVA, this is something you may seriously want to consider. By negotiating and making an offer to your creditors at this point, you may be able to strike an agreement that works out more beneficial to you financially in the long term.
What happens if I receive a windfall during my IVA?
As mentioned above, if you receive a windfall while in the middle of an IVA, creditors can request that you pay these funds into the arrangement, contributing to your repayments. If you fail to notify your IP or IVA company about a windfall, instead spending these funds, your creditors have the right to contest your IVA. By arguing that these funds should have been used to repay them, creditors can work with your IP to cancel your IVA, potentially leaving you open to bankruptcy.
Can you hide inheritance from an IVA?
No. Attempting to hide or conceal an inheritance, or a windfall of any kind, from your creditors and the insolvency practitioner overseeing your IVA can have serious consequences. If you’re found to have deliberately concealed any inherited funds or assets, or any information about your financial situation, this could be considered fraudulent behaviour.
This could result in your IVA being cancelled. In serious cases, it could also mean legal action from your creditors, and even potential criminal charges. For this reason, it’s always best to be transparent and honest about your financial situation when entering into an IVA.
Can you inherit money while on a debt management plan?
Debt management plans (DMPs) are less formal debt management solutions when compared to IVAs. Unlike with IVAs, there’s no legally binding agreement when it comes to DMPs, and your assets, including any inheritance, generally remain yours.
That being said, if you do receive a windfall such as a significant inheritance while you are paying debts off using a DMP, it’s a good idea to use any windfall funds you receive to repay your debts. At the very least, you should always disclose any big financial changes to your DMP provider. They will be able to advise you on your best course of action when it comes to your DMP and repaying your creditors.
IVAs and DMPs can become complicated when it comes to windfalls like inheritance. That’s why, here at MoneyPlus, we help you understand how changes in financial circumstances impact on your debt management solution, helping to ensure you remain compliant. To find out more about IVAs and DMPs, visit MoneyHelper to get free debt advice, or to apply for a consultation today, get in touch with our helpful team.
