Windfalls During an IVA, Including PPI Refunds

If you receive a windfall during an individual voluntary arrangement (IVA), the usual rule is that it goes to your creditors. Citizens Advice puts it plainly: "If you receive a windfall during your IVA, for example an inheritance, this will usually be taken and paid to your creditors"¹. Most IVAs contain a windfall clause, which means sudden, unexpected money such as an inheritance or a work bonus has to be put into the arrangement².

The same applies to a lottery or cash prize win, an insurance payout or a redundancy payment³. Some IVA proposals let you keep a windfall if its total value does not exceed £500, but not all proposals are the same, so the terms of your own arrangement decide⁴. One provider states that any windfall over £500 will be put towards your IVA⁵.

PPI compensation is the main exception. It is not treated as a windfall, so it does not automatically go into the arrangement in the way an inheritance does⁶. What follows covers what counts as a windfall, what to do when one arrives, how fees work, where IVAs are available and how to complain if something goes wrong.

A windfall during an IVA usually goes to your creditors

An IVA is a formal agreement with the people you owe. Once creditors holding more than 75 per cent of your debts accept it, the IVA applies to all your creditors, including any who voted against it¹⁰. In return for the payments you agree to make, creditors stop contacting you directly, because they have accepted that you will pay them through the insolvency practitioner¹¹.

A windfall sits outside that monthly payment. It is money that arrives unexpectedly, and the arrangement treats it as something that should go towards the debts rather than stay with you. The guidance for debtors is that you will usually need to pay all of a financial windfall, such as an inheritance, compensation or lottery winnings, into your IVA¹². Creditors will expect 100 per cent of any windfall to be considered for the IVA³.

There is a limit to how far this reaches. Creditors might be able to claim money due from before the IVA even after it has finished¹. That means a windfall arriving after completion is not automatically safe, depending on what the arrangement says.

Where the money goes is worth understanding. Very broadly, creditors receive around 80 per cent of the total amount you pay into an IVA, with the insolvency practitioner receiving the other 20 per cent¹³. After the first five payments, the split is 15 per cent to the practitioner and 85 per cent to creditors¹⁴. So a windfall paid in does not reduce your debts pound for pound; part of it covers the cost of running the arrangement.

What counts as a windfall: inheritance, compensation and lottery wins

The examples given in guidance are a lottery or cash prize win, an inheritance, insurance payouts and redundancies³. Most IVAs contain a windfall clause covering sudden, unexpected money such as an inheritance or a bonus at work². Any windfalls or inheritance are considered an asset¹⁵.

Redundancy has its own treatment. A redundancy payment is classed as a windfall, and any amount above six months' net wages may need to be paid into your IVA¹⁶.

The £500 figure appears in two places, and they are not quite the same rule. One source says a debtor can generally keep a windfall if the total value does not exceed £500, while noting that not all IVA proposals are the same⁴. Another describes an after acquired asset, meaning an asset, windfall or inheritance above £500, that should be considered for the IVA⁷. A provider states that any windfall over £500 will be put towards your IVA⁵. The practical effect is similar: small sums may be yours to keep, larger ones are expected to go in, and the wording of your own proposal is what settles it.

Do I have to pay a PPI refund into my IVA?

PPI compensation is not considered a windfall⁶. That single distinction matters, because it means a PPI refund does not follow the same route as an inheritance or a lottery win.

The Financial Ombudsman Service sets out how an IVA affects a consumer's position on PPI redress: it depends on the terms of the IVA, and, unlike bankruptcy, the consumer's assets do not pass to the IVA supervisor when the consumer enters the IVA¹⁷. That is a meaningful difference between the two formal solutions. In bankruptcy, assets pass to the trustee; in an IVA, they do not.

There is a separate point about how much a PPI refund is worth. You can still make a complaint about PPI if you have used your PPI policy, but if you get a refund because it was mis-sold, it is likely that any payout you got when you claimed will be taken off your compensation¹⁸. So a refund can be smaller than expected for reasons that have nothing to do with the IVA.

Because the treatment of PPI depends on the terms of your own arrangement, the wording of your proposal is the place to check, and your IVA supervisor is the person to ask.

Telling your insolvency practitioner and what happens next

Tell your IVA supervisor about a windfall or inheritance as soon as possible¹⁵. The timing matters: money that has already been spent is harder to deal with than money that is still sitting in an account.

Your insolvency practitioner has a defined role. They act as nominee after you decide to go ahead, with legal duties that include telling creditors how likely the IVA is to succeed, remaining impartial and not being influenced by you or the people you owe¹⁹. That impartiality is why the practitioner, not you, decides how a windfall is handled under the terms of the proposal.

After the meeting of creditors, a welcome pack arrives through the post a few days later, the supervisory team conducts an annual IVA review, and the insolvency practitioner oversees the terms of the proposal²⁰. A windfall is dealt with inside that structure rather than as a separate negotiation.

Fees on an IVA and what they come out of

There are no upfront fees⁸. Fees come out of the agreed monthly payment, with no charge on top and no charge for debt advice²¹. You make payments to your insolvency practitioner once your IVA is in progress²².

The exceptions are the ones a reader with a windfall needs to know about. If you have a significant windfall during the IVA and are able to pay back your debts in full, or if your IVA fails, your creditors may require you to contribute an amount to cover fees on top of your debts²³. In the same circumstances it is unlikely that you will be able to recover any fees you have already paid²⁴.

So a windfall large enough to clear the debts is not simply a matter of handing over the outstanding balance and walking away. The fees that would have come out of future monthly payments may still need to be covered, and the money already paid towards them is generally not returned.

Will a windfall end my IVA early?

It can. An IVA can end sooner if you make a lump sum payment²⁵. A windfall big enough to repay the debts in full is the clearest route to an early finish.

Ending early is not always a clean exit, though. If you end your IVA early, creditors can add backdated interest and backdated charges, payable in addition to the outstanding balance²⁶. The consequences of an IVA ending early include creditors restarting interest and charges, and being able to add these for the period the IVA was in place; the debt not being reduced by the amount paid, because some of it covered insolvency practitioner fees; creditors taking recovery action; and, in rare cases, an application to make you bankrupt²⁷.

That is why a windfall is not automatically good news for someone in an IVA. A sum that looks large enough to clear the debts may not be, once fees and backdated charges are accounted for, and the arrangement may be better left to run its course. The figures in your own proposal, and the practitioner's assessment of them, are what decide.

Where IVAs apply: England, Wales and Northern Ireland only

An IVA is only available in England, Wales and Northern Ireland, and Northern Ireland has slightly different IVA rules⁹. The same territorial limit appears across the guidance: England, Wales and Northern Ireland only²⁸.

If you live in Scotland, you cannot get an IVA³⁰. A protected trust deed works in a similar way³⁰, and there are Scottish alternatives including sequestration and the Debt Arrangement Scheme. The rules on windfalls under a protected trust deed are a separate subject from the rules under an IVA, so a reader in Scotland needs the Scottish guidance rather than this page.

Your IVA will be listed on the Individual Insolvency Register, an online database used by credit reference agencies to update your credit rating¹⁰. That listing is public and stays in place for the life of the arrangement.

Complaints about how your IVA is handled

Start with your IVA provider. Complaints about an insolvency practitioner's regulated work should be completed online at gov.uk/complain-about-insolvency-practitioner, and if the matter is not settled, the next step is the regulatory body that licences the practitioner³¹. Complaints about the work of an insolvency practitioner should be made via the Insolvency Complaints Gateway, which ensures complaints are investigated by the right regulatory body³².

There is a documentary requirement. If you complain to the Insolvency Service, you must include the reply you received from your IVA provider, and you will need as much evidence as possible of the poor practice³³. Keeping the correspondence from the start makes that easier.

Where a windfall has been mishandled, the complaint is about the practitioner's regulated work, not about the size of the debt or the terms of the arrangement. Free and impartial help with the wider debt position is available from charities such as StepChange and from the Debt Advice Foundation, and the Insolvency Service research into IVAs was commissioned by the Insolvency Service itself³⁴.