What happens if I get a windfall while I am in a Trust Deed?
Once you start a Trust Deed (TD) the amount you will pay back to your creditors is not necessarily fixed. If you receive a windfall this money must be paid into your agreement for the benefit of your creditors.
A windfall is any lump sum of money which becomes payable to you during the course of your Trust Deed. It would include things like inheritance payments, compensation payments and lottery wins.
If you receive any of these types of payments while your Trust Deed is running then you must inform your Insolvency Practitioner about them straight away.
Can I keep any part of a windfall I receive?
Generally speaking when you are in a Trust Deed you are living on a tight budget and may have had to put off things that you cannot afford.
As such one of the most commonly asked questions about windfalls is will you be able to keep any of the money you have received to help pay for pressing expenditures such a anew home appliance, house or car repairs?
The answer is that your insolvency practitioner (IP) is not obliged to let you keep any of the windfall you have received to help pay for these types of expenditures.
Depending on your circumstances and the urgency and importance of the expenditure you require, your IP might agree to let you keep some of your windfall to pay for this. However this is by no means guaranteed.
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Could a windfall ever pay a Trust Deed early?
For this reason, the receipt of a windfall will not normally help to pay the agreement off early. Unless your circumstances have change dramatically you will usually have to continue paying your monthly payments as well.
The windfall has the effect of increasing the amount that is paid back to your creditors overall. It will not mean that your TD is paid off early other than in some particular situations which we explore below.
There are some occasions when a windfall could pay off an Trust Deed early.
The first of these is a situation where the windfall is so large that it is sufficient to pay 100 percent of the original debt. This is not the amount that you agreed to repay your creditors in your TD but the full amount of the original debts that you owed.
On top of the total original debt, the windfall would also need to be sufficient to pay the Insolvency Practitioner’s fees and statutory interest which can be added at 8 percent a year from the date the TD started.
More commonly a windfall may be sufficient to pay off a Trust Deed early if your circumstances change at the same time as the windfall is received and you can no longer afford to make your ongoing or even reduced TD payments.
An example of this would be receiving a windfall of compensation after an accident which means that you are no longer able to work.
In this situation the Insolvency practitioner may be able to agree with your creditors that the amount you have paid into your TD already together with some or all of the windfall you have received will be accepted in full settlement of the arrangement as there is little prospect of any additional payments.
Lump sums from third parties
If a third party offers to give you a lump sum on the basis that it is used to settle your Trust Deed early, then in these circumstances the money you receive is not considered to be a windfall.
This is because it is argued that this lump sum is only made available if your creditors agree that they will accept it to settle your TD. Otherwise the money would not be given to you.
If you believe you might have access to such a lump sum you need to discuss the amount available with your Insolvency Practitioner. They can then make the offer to your creditors.
Sensible lump sum offers are often accepted by creditors in full and final settlement of TDs even if it means that they will receive slightly less than originally agreed. This is because a lump sum means that they will receive cash immediately rather than having the risk of waiting for you to finish making your monthly payments.
Generally speaking the lump sum itself does not have to be handed over to your IP until the creditors have agreed to accept the settlement. However your IP might need some kind or proof that the lump sum will be made available or in some circumstances require it to be held on account.
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