Advice for people in IVAs on what will happen to any money they receive through Payment Protection Insurance refunds
We’ve become aware that a number of people in Individual Voluntary Arrangements are hoping to benefit from the recent decision by the banks to stop fighting PPI miss-selling claims and pay up . Sadly, it will rarely mean more money in the pocket: People in IVAs who are eligible to reclaim Payment Protection Insurance (PPI) premiums and/or compensation from banks and credit card companies will usually see it go to reduce their debt and will not get the cash themselves.
This is because the purpose of an IVA is to repay as much money to your creditors as possible whilst maintaining a good standard of living and as such any money received needs to be paid to your Supervisor to ensure your creditors receive the best possible return on the money you borrowed.
In the past, certain creditors have been looking to offset PPI funds against their own claim within the IVA, however it has recently become apparent that PPI Claims are compensatory in nature as the PPI Policy should not be linked with the debt. This means that creditors are no longer able to do this and must treat the claim as an after acquired asset and pay the money to the Supervisor of the IVA estate.
As PPI is an after acquired asset, the Supervisor of your IVA must now ensure that ALL potential PPI claims are thoroughly investigated and ensure that the funds from any successful claims are paid to your creditors.
Unexpected sums like these are called “windfalls” and all have to be paid into the IVA for the benefit of your creditors. The same is the case if you inherit a sum of money or are fortunate enough to win the lottery. Put simply, if your creditors have agreed to write off a considerable amount of your debt, it is only fair and reasonable to give them as much as you can.
Here’s the clause that usually appears in our IVA agreements – most IVAs, whoever they are written by, will have something similar:
“Where any creditor agrees, for whatever reason, to make a repayment to the debtor during the continuance of the arrangement, then that payment shall be used solely in reduction of that creditor’s claim in the first instance. If such repayment results in the creditor’s claim being entirely extinguished (after the application of set off) any surplus will be treated as an after acquired asset and offered to the supervisor for the benefit of the arrangement.”
IVA holders who are unclear about their own situation should contact their IVA supervisor.