What will happen if I get PPI compensation while I am in an IVA?
1 June 2011
James Falla (about the author)
If you are considering making a claim for PPI mis-selling, we look at what will happen to any refund or compensation you receive if you are in an IVA.
If you are in an Individual Voluntary Arrangement (IVA) and you believe that you were mis-sold PPI then you can make a claim for PPI mis-selling.
The fact that you were subsequently unable to pay the debt and are now in an IVA is not relevant. The two situations have no bearing on each other.
However, it is important to understand that any compensation payment that you receive while you are still in your IVA will be treated as windfall.
This means that you will have to hand the payment over to your IP to be paid into your IVA for the benefit of all of your creditors.
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Any compensation must be paid into your IVA
When starting an IVA many people are under the impression that the payments that have been agreed are fixed. This is not the case.
If your circumstances change for the better while you are in an IVA you will be asked to increase your monthly payments accordingly so that the overall amount you pay to your creditors increases.
If you receive a lump sum of money in the form of a windfall from any source whether that is through a PPI compensation payment or otherwise, you will normally be required to pay all of this into your IVA
This payment will not offset the amount you still owe in your IVA.
Your monthly payments will continue as normal. The injection of cash from the windfall will simply increase the overall amount that your creditors are paid.
Do I have to make a claim fo PPI mis-selling?
If your Insolvency Practitioner asks you to make a claim for mis sold PPI while your IVA is still up and running you must cooperate with this request.
More and more insolvency practitioners are asking people in IVAs to make a claim for PPI mis-selling. This is because IPs are obliged to maximise the return from the IVA for all of the creditors in it.
Under the terms of your IVA, you are obliged to co-operate with your insolvency practitioner. If you do not, this might be grounds for your IP to fail your IVA.
For this reason if your insolvency practitoner asks you to make a claim for PPI mis-selling while you are still in your IVA, then you will almost certainly have no option but to do so. Any compensation payments received will then have to be paid into your IVA.
Could I delay my claim until after my IVA?
If a compensation payment is made to you while you are still in your IVA, it is likely that you will personally gain no benefit from it as it must be paid into your IVA.
If on the other hand the payment is made after your IVA is completed (and you have certificate of completion), then you will be able to keep this money for yourself.
As such, if you want to avoid handing over any compensation or refund you receive to your insolvency practitioner, you could consider delaying your claim until after your IVA is completed (unless you have been asked by your IP to make the claim).
There has currently been no indication from the banks that there will be a time limit set within which PPI claims have to be submitted. As such even if your IVA still has some time yet to run, it is conceivable that you could delay a PPI claim until after its completion.
Is there any benefit of making a claim while still in your IVA?
There could be an advantage of claiming for PPI compensation which is then paid into your IVA.
Although it will not reduce the length of your IVA or the amount of your monthly payment, it will increase the overall amount that has been paid to your creditors.
If at a later date, your circumstances take a turn for the worse and you have to reduce your payments or even consider stopping your payments all together, your creditors will consider the amount you have already paid when deciding what to do.
If this amount has been increased due to PPI compensation there is more chance that your creditors will agree to you reducing your monthly payments or settling your IVA there and then on the amount already paid in.
Understand your options
The key thing to understand about making a PPI claim if you are in an IVA is that if you receive a payment while your IVA is still running, it will have to be paid into the arrangement.
The payment will generally have no affect on you ongoing IVA payments which will remain the same, although if you start to struggle with your payments at a later date, to have paid extra into your arrangement could be of benefit.
With this in mind, perhaps the important question is when to claim.
The timing of the claim and whether or not your IVA is still running if and when you receive compensation or a refund will ultimately determine what happens to the money you receive.
If you want to try to keep any compensation you receive, delaying your claim may be a sensible option.