They Think It’s All Over, It Isn’t Now!

Sorry for the footy reference because this is about IVA’s.

There is a lot that’s wrong with the IVA market at the moment but one of the big issues is that these  are being sold on the back of writing off anywhere between 25% and 81% ‘of your debts off’.

Put simply, they don’t. Hang on though, isn’t that the point of an IVA – you agree to pay an affordable amount over 5 to 6 years which is distributed to your creditors and at the end of that you are free and clear of your debts. Well, the answer to that is yes, but….

and here is the thing, most (not all) IVA’s have what’s called a windfall clause and another thing that’s called a post completion trust. These are a bit technical so I will explain.

The windfall clause does kind of do what it says which is if you have a windfall when you are in the IVA, it has to go to the IVA. A windfall can be something obvious like a lottery win, or being left something in a will but it can also include less obvious things so it could also cover where you sell your house and once you have paid off the mortgage and the costs associated with that, any surplus that is left can be counted as a windfall. Not so useful if you wanted to buy another house. The same could apply if you had an accident and received compensation for that accident.

The post completion trust means that until you have paid back 100% of your creditors  even if you have a completion certificate you are still subject to the windfall clause, which means you never really leave your IVA behind until all your debt is cleared.

Not all IVA’s have both these clauses, again to get technical if your IVA is what is known as an unmodified R3 standard conditions IVA then it will have, if you have an unmodified IVA Protocol Standard Conditions IVA from 2014 onwards with an ‘all asset’ clause then you will also be caught by this. These two forms of IVA count for most of the IVA’s that are currently in force, so if you are in an IVA and were not aware of this you might want to check to see if your IVA really does end when they say it does.

Written by Richard Byrne – Director of The Byrne Practice