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What happens to a Windfall if you are Bankrupt?
Any cash lump sum payment you receive while you are bankrupt is classed as a windfall (After Acquired Property). This includes things like an inheritance payment, a lottery win, compensation or life insurance pay out or an unexpected bonus.
All such receipts are an asset of your bankruptcy estate. This means that they have to be paid to the Official Receiver (OR) who is dealing with your case. The money will then be used to pay the OR’s fees and the debts you owe.
You are legally obliged to inform the OR about the money you have received. If you do not tell them and they subsequently find out you could be at risk of having your bankruptcy extended for non co-operation. You may even risk being accused of a criminal offence.
Before any inheritance is paid the solicitor responsible for the deceased’s estate will normally check to see if you are Bankrupt. If so they will be obliged to contact your OR and make the payment directly to them.
Can you keep any part of a Windfall received if you are Bankrupt?
If you receive a windfall before you are discharged from Bankruptcy generally speaking all the money has to be paid to the Official Receiver. You will not be allowed to keep any of it unless the amount received is very small. The OR will not be interested in a £10 lottery win.
If you have a financial emergency you can ask your OR if they will agree to letting you keep some of your windfall. There is no guarantee that they will agree to this and they are not obliged to do so. However you may have exceptional circumstances where they will. It does not hurt to ask.
The one exception where you can keep a windfall is in the case of personal injury compensation paid for pain and suffering. This element of a personal injury claim would be yours to keep. However any element paid for loss of earnings would go to the OR.
Could a Windfall result in your Bankruptcy finishing early?
The fact that you receive a windfall will not normally mean your Bankruptcy finishes early. The only way this could happen is if the amount received is sufficient to pay the total of your outstanding debt plus the Official receiver’s costs and statutory interest.
As such unless the amount you have received is very large it is unlikely that your Bankruptcy will be finished early as the result of receiving windfall.
If the money you get is not sufficient to pay all your debts and costs it will simply be paid to your OR. Your bankruptcy will then continue as normal until you are formally discharged.
What if you get a Windfall after you are Discharged from Bankruptcy?
After you are discharged from bankruptcy the windfall rule no longer applies. Most windfalls you receive after this date are yours to keep. If you win the lottery or you are left money in a Will after you have been discharged you can keep this money.
However there are exceptions to this rule. Firstly if the windfall received is the result of an event that happened before or while you were bankrupt the money still has to be paid to the Official Receiver
Examples of this are inheritance which becomes due if your benefactor dies before or during your bankruptcy. Also compensation for PPI mis sold before you went bankrupt.
Generally the windfall rules are not extended by an Income Payment Agreement (IPA). However if you get a bonus or earn overtime during an IPA you will still have to pay this to the OR.