If you are in an IVA making monthly contributions of your disposable income and you are unfortunately made redundant, you may receive a redundancy lump sum.
In the first instance you should immediately inform your IP who is supervising your IVA of this serious change in your circumstances. Your supervisor is obliged to keep your creditors informed and will advise you what to do.
Any redundancy lump sum is a windfall and the terms of your IVA proposal will spell out how such a windfall is to be treated. You will normally be required to contribute the full amount of any windfall into your IVA. However, given that this is a redundancy payment, your supervisor should be able to convene a Meeting of Creditors to determine how much of it (if any) you will be required to pay into the IVA. Your supervisor will quickly seek to determine the extent of the changes in your circumstances, particularly your loss of income. You will apply for any benefits to which you may be entitled following the loss of your employment. Some of these benefits may be means tested and may be reduced due to your having received a redundancy lump sum. Some benefits may kick in after a period of time. For example, after being unemployed for three months the benefits agency may begin to pay the interest on your mortgage. If your mortgage is repayment rather than interest only, you may be in default if you do not make the full repayments. You will be expected to seek employment as soon as possible so as to restore your income. It may be necessary for you to learn new skills and obtain appropriate training first. Your age, qualifications, skills or experience may be barriers to gaining new employment.
Your supervisor will quickly seek to determine the extent of the changes in your circumstances, particularly your loss of income. You will apply for any benefits to which you may be entitled following the loss of your employment. Some of these benefits may be means tested and may be reduced due to your having received a redundancy lump sum. Some benefits may kick in after a period of time. For example, after being unemployed for three months the benefits agency may begin to pay the interest on your mortgage. If your mortgage is repayment rather than interest only, you may be in default if you do not make the full repayments. You will be expected to seek employment as soon as possible so as to restore your income. It may be necessary for you to learn new skills and obtain appropriate training first. Your age, qualifications, skills or experience may be barriers to gaining new employment.
Your supervisor will take all these factors into account and prepare a new Income and Expenditure Statement for you. Your creditors may be invited to consider a variation to your IVA, taking into account the redundancy lump sum, your reduced income and all of the new circumstances in which you find yourself. The variation proposal may seek a reduction or a moratorium on your IVA contributions for a period of time, perhaps from three to six months, while you obtain training or seek or obtain employment. The variation proposal can also seek creditors’ permission for you to retain a portion of the lump sum to cover your normal living expenses for a limited period of say three months, taking into account any benefits you are entitled to during that period. If you are unlikely to be able to obtain employment, the variation proposal may seek creditors’ agreement to accept all or some of the redundancy lump sum in full and final settlement of your IVA, even where the dividend is lower than the estimated dividend in your IVA.
In a nutshell then, a redundancy lump sum is a windfall and you will not be allowed to keep any part of it without the express permission of your creditors. However, inform your supervisor of your new circumstances and it may be that it will lead to a happy ending for you as well as for your creditors.