IVA & Inheritance: What You Need To Know

Author Name Chris Richards Article date June 19, 2023

Receiving an inheritance can have significant implications on your financial situation, particularly if you are in a debt solution or considering one. One such solution is an Individual Voluntary Arrangement (IVA), a legally binding agreement between you and your creditors to repay a portion of your debts over a set period.

Understanding the relationship between an IVA and inheritance is crucial for managing your finances effectively. When you inherit money or assets, it may affect your IVA and the amount you are required to repay. The inheritance could be used to pay off a portion of your debts, potentially altering the terms of your agreement.

Looking to apply for an IVA?

Looking to apply for an IVA?

It is essential to inform your Insolvency Practitioner (IP) if you receive an inheritance during your IVA. They will assess the situation and determine how the inheritance should be allocated. In some cases, your IVA payments may increase, or the inheritance may be used to settle your debts in full, resulting in the early completion of your IVA.

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What is an IVA?

An Individual Voluntary Arrangement (IVA) is a legally binding agreement that enables you to repay your debts through affordable monthly payments over a specific period. Applicable to residents in England, Wales, and Northern Ireland, the IVA serves as an alternative to bankruptcy. It is especially useful for those struggling with priority debts, such as council tax or rent arrears, and unsecured debts like payday loans or credit card debt.

Upon entering an IVA, creditors are prohibited from taking further action against you, and all interest and charges on the debts owed are frozen. By adhering to the terms of the agreement, the remaining balance of the original debt will be written off.

In summary, an IVA provides a viable solution for individuals facing financial difficulties, allowing them to repay their debts in a manageable way while avoiding bankruptcy. With the protection it offers against further creditor action and the potential to write off remaining debt, an IVA can be a valuable tool in regaining financial stability.

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What is inheritance?

Inheritance is the transfer of assets or wealth from one generation to the next, typically occurring between family members upon the demise of grandparents or parents. The nature of inherited assets can differ among families. While some may receive a substantial sum of money, commonly referred to as a windfall payment, others might inherit assets like real estate or valuable items such as jewellery.

When considering inheritance from various perspectives, it is essential to understand the legal and financial implications involved. Inheritance can impact one’s financial situation, particularly if the individual is dealing with debt or insolvency issues, such as an Individual Voluntary Arrangement (IVA). In such cases, the inheritance might be used to repay outstanding debts, potentially altering the terms of the IVA and affecting the individual’s financial future.

It is crucial to be well-informed about the inheritance process and its potential consequences. Seeking professional advice from experts in the field can help individuals navigate the complexities of inheritance and ensure that they make informed decisions. By understanding the various aspects of inheritance, individuals can better prepare for the future and manage their financial obligations effectively.

In summary, inheritance involves the transfer of assets or wealth between generations, often in the form of money, property, or valuable items. It is essential to consider the legal and financial implications of inheritance, particularly for those dealing with debt or insolvency issues. Obtaining professional guidance can help individuals make informed decisions and manage their financial situations effectively.

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Our trained advisors are here to help, so if you think an IVA proposal is one of the best debt solutions for you, don’t hesitate to call us on 0800 464 7235 to speak to one of our trained debt advisors or click below to see if you qualify…

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Can an IVA take my inheritance money?

An IVA, or Individual Voluntary Arrangement, is a legally binding contract between you and your creditors, requiring strict adherence to its terms and conditions. Upon signing the IVA proposal, you agree to allocate any windfall payment exceeding £500, including inheritance, towards your IVA.

In the event of a person’s death, if you are a beneficiary in their will, the received inheritance must be contributed to your IVA plan as specified in the windfall clause. This clause obliges you to inform your insolvency practitioner or IVA company of any windfall received. Failure to disclose your inheritance may jeopardise your IVA agreement and potentially lead to bankruptcy.

To summarise, an IVA can indeed claim your inheritance money as per the windfall clause in the agreement. It is crucial to notify your insolvency practitioner or IVA company about any inheritance received to avoid putting your IVA at risk and facing possible bankruptcy.

How much of my inheritance will I need to pay into an IVA?

In an Individual Voluntary Arrangement (IVA), a windfall clause typically encompasses inheritances exceeding £500. Consequently, you should be mindful that inheritances are not limited to cash payments but may also include assets such as property, jewellery, or other high-value items. These assets must be allocated toward settling outstanding debts, as the primary objective is to utilize the inherited funds or assets to benefit your creditors and repay the debts owed.

When addressing the question of how much of your inheritance will be required for payment into an IVA, it is essential to consider the specific terms of your arrangement. The windfall clause generally stipulates that any inheritance above the £500 threshold must be included in the IVA. As a result, the majority of the inherited assets or funds will be directed toward debt repayment.

In summary, if you receive an inheritance while under an IVA, it is likely that a significant portion of the inheritance, particularly any amount exceeding £500, will be used to pay off your debts. This includes not only cash inheritances but also valuable assets such as property or jewellery. The exact amount required for payment into the IVA will depend on the terms of your arrangement and the nature of the inherited assets.

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Could I end my IVA early if I receive an inheritance?

Receiving an unexpected windfall, such as inheritance money, typically does not shorten the duration of an Individual Voluntary Arrangement (IVA). Instead, the additional funds contribute to the overall repayment of the original debt. Monthly payments to the IVA company generally continue until the arrangement’s conclusion.

Nonetheless, there is an exception. If the inherited amount is substantial enough to cover the entire original debt, including fees, it is possible to settle the debt with a lump sum payment. In this scenario, the IVA may be terminated early, and the individual would no longer be obligated to make monthly payments.

In summary, while an inheritance does not usually shorten an IVA’s length, a sufficiently large sum could potentially enable the debtor to repay the entire debt and terminate the arrangement early. This outcome, however, depends on the specific circumstances and the inherited amount’s capacity to cover all outstanding obligations.

Can I keep any inheritance payments?

Inheritance and Individual Voluntary Arrangements (IVAs) often raise questions about the possibility of retaining any inherited funds. Typically, IVA terms and conditions stipulate that windfalls, such as inheritance payments, must be incorporated into the arrangement. However, it is crucial to understand that insolvency practitioners possess the discretion to permit the retention of a portion of the inheritance.

An insolvency practitioner may allow this if they determine there is a justifiable need for the funds. For instance, essential home improvements or replacing necessary household items could be valid reasons to keep some inheritance, with the remaining amount allocated towards debt repayment. Upon receiving an inheritance, the insolvency practitioner will assess the individual’s current financial situation. This evaluation involves examining bank statements, income or benefits, and the debtor’s progress in repaying their IVA obligations, ultimately informing the practitioner’s decision.

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Is it against the law to hide inheritance money received when in an IVA?

An Individual Voluntary Arrangement (IVA) is a legally binding agreement, obligating individuals to adhere to its terms and conditions. As part of this commitment, individuals must inform their insolvency practitioner of any inheritance received during the IVA period. Concealing such information can lead to a breach of the agreement, potentially resulting in termination of the contract.

If the IVA is terminated, individuals become liable for the total debt owed before entering the agreement. Moreover, failure to comply with the IVA terms can lead to bankruptcy. In such cases, individuals may be required to repay not only the IVA-related debts but also any additional debts that were not initially included in the arrangement.

In summary, hiding inheritance money while in an IVA is against the law, as it violates the legally binding agreement. It is crucial for individuals to disclose any inheritance received to their insolvency practitioner to avoid breaching the IVA terms and facing severe financial consequences.

Frequently asked questions

  • What happens if I receive inheritance money before an IVA?

    When grappling with debt and contemplating a debt solution such as an IVA, it is vital to understand the impact of an inheritance payment on the process. Should you obtain a substantial sum before initiating an IVA, creditors might demand the inclusion of these funds in the arrangement. Moreover, the IVA proposal could be declined by creditors if they believe the inheritance should have been directed towards them.

    In anticipation of receiving inheritance money, it is crucial to consult with a professional debt advisor to determine the most suitable debt solution. By doing so, you can navigate the complexities of debt management and inheritance while ensuring the best possible outcome for your financial situation.

  • Should I delay entering an IVA if I expect inheritance money?

    Entering an IVA is an individual decision, and if you anticipate receiving an inheritance, delaying the IVA initiation might be a consideration. However, it is crucial to understand the implications of obtaining inheritance before committing to an IVA. Utilizing the inheritance funds for purposes other than repaying creditors could jeopardize the chances of future IVA approval.

    It is essential to avoid making preferential payments, such as settling debts with family and friends while neglecting other creditors. This practice could lead to the rejection of your IVA proposal by the unpaid creditors. In summary, carefully weigh the potential consequences of receiving inheritance before entering an IVA and ensure fair treatment of all creditors to increase the likelihood of a successful IVA agreement.

  • What happens if an IVA application is rejected?

    In the process of applying for an Individual Voluntary Arrangement (IVA), it is crucial to obtain approval from at least 75% of creditors, who collectively hold a minimum of 75% of your total debt. Essentially, if the creditors owed the most significant amounts vote against the agreement, the IVA may not proceed. Your IVA company will represent you during the creditors’ meeting and inform you of the outcome.

    If your IVA application is rejected, you will find yourself in the same financial situation as before the application. In such cases, you must directly negotiate with your individual creditors to manage your debts. Although this outcome may be disheartening, it is vital to continue exploring debt solutions that best fit your circumstances. Alternative options, like debt management plans, can also help reduce monthly payments to a manageable level without writing off a portion of the original debt.

  • Looking for more information about an IVA and inheritance?

    Inheritance and Individual Voluntary Arrangements (IVAs) can be complex subjects. Living with debt can be challenging and discussing it may be even more difficult. Consequently, our experts are committed to providing clear and concise debt advice, enabling individuals to identify the most suitable debt solution for their specific needs.

    Navigating the complexities of IVAs and inheritance requires expert guidance. IVA Helpline’s experienced team is well-equipped to assist clients in understanding the implications of an IVA on their inheritance. By offering comprehensive advice, our experts help clients make informed decisions regarding their financial future.

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