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 will most often arrive in the shape of some good fortune, such as a Lottery win or a prize, but it can also come about as a result of misfortune too. Redundancy payments, an Inheritance or Insurance payouts are also classed as financial windfalls.
IVA Windfall Clause
By definition, a windfall will be unexpected, but that does not mean that if one arrives it will be ignored by your creditors.
For, whilst they recognise it will be a matter of chance as to whether you receive a windfall or not during the term of your IVA, they will ensure there is a clause in your IVA which deals with a windfall if one arrives.
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 will receive a windfall, pass it to their Insolvency Practitioner and still continue paying into their IVA as normal as if nothing had happened.
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 Insolvency Practitioners 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 Insolvency Practitioner will issue a certificate of completion.
Exceptions To The Windfall Clause
Whilst the windfall clause will obligate you to notify your Insolvency Practitioner 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 maybe 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 your windfall clause, you should call your Supervior directly.