New figure from the Insolvency Service indicate record levels of insolvency for 2009.
Once you file for bankruptcy you no longer need to make payments to your creditors, and some people find they have more income than is regarded as necessary for ‘every day living expenditure'. As bankruptcy aims to help creditors recoup some of what they are owed as well as helping a debtor out of financial difficulty, you may find that in addition to your assets being sold to pay them, you may be required to make contributions towards your bankruptcy debt.
What is an Income Payment Agreement (IPA)?
An Income Payment Agreement is an agreed arrangement executed by your Official Receiver or Trustee, which asks you to make regular payments from your income towards your bankruptcy estate - usually for 3 years. This is in accordance with section 310A of the 1986 Insolvency Act. The payments will be deducted from any ‘surplus' income you may have - in other words any spare money you have after paying your necessary living expenses.
An IPA is a voluntary arrangement, but is also a formal written agreement between you and your Official Receiver/Trustee, and as such is binding. The agreement can be varied if your circumstances change, but if you fail to meet the agreed payments then your trustee can apply to the court for an order suspending your discharge from bankruptcy - resulting in you being subject to bankruptcy restrictions for much longer than the normal 12 months. Money can also be deducted straight from your wages if you fail to meet the agreement.
What is an Income Payment Order (IPO)?
The Official Receiver or your Trustee will try to reach an agreement with you about the amount you should regularly pay, without having to apply to the court for the order. If you are unable to agree on an amount then the Official Receiver/Trustee can apply to the court for an Income Payment Order or IPO.
As an IPO is a court order, if you fail to make the payments your Official Receiver/Trustee can then apply to the court for an order suspending your discharge from bankruptcy. This will mean being subject to bankruptcy terms for a far greater period of time. They can also take legal action to recover the unpaid amounts.
Calculating IPAs and IPOs
You will only be asked for an IPA or IPO if payment of these will leave you sufficient funds for you and your family to cover your basic domestic needs. This means money you need for daily living expenses for you and everyone that depends on you - such as children and any adults living with you who have no source of income. Your 'reasonable domestic needs' will be assessed by examining all the circumstances of your case. There is no fixed amount for an IPA or IPO and each case will depend on individual circumstances.
In order to calculate any income payment requests, you will be required to provide details of your income and spending in your ‘Statement of Affairs'. This will include details of your income as well as monthly expenses, such as rent, essential utilities such as gas and electric, food and clothing etc. You will have to provide proof of these - such as wage slips, rent books, and bills.
You will need to include any payments you receive, including income from self-employment, PAYE employment, any benefits (including child benefit and child tax credit), working tax credit and any pension scheme payments.
You will also be asked to provide details of your partner's income, as it is assumed that your partner will contribute to the household expenses. You will also be asked to provide details of payments you get from any other member of your household who contributes to household expenses.
If you are not willing to provide this information, you will not be able to claim the full amount of all household expenses.
Once your monthly expenditure has been assessed, and after taking into consideration your income and circumstances, your Official Receiver/Trustee will decide on a reasonable payment - if any. After deducting your domestic expenses from your income, the money that remains is classed as your ‘real disposable income'. It is usual to expect to pay 50% of your real disposable income towards your IPO or IPA agreement. The more disposable income you have, the greater the payments.
If your main or only income is state benefits, then it is doubtful that you will be ordered to pay an IPO or IPA.
What is classed as ‘reasonable domestic expenses'?
In addition to your basic expenses like rent or mortgage payments, food, heating and lighting and essentials to the family such as clothing - certain other things can be included. For example:
- One set per household of TV licence, TV and video hire
- Household insurance
- Car tax and insurance (if the vehicle has not been included in your saleable assets)
- AA/RAC or similar membership
- Membership of a professional body needed for your job (unless your employer pays for this)
- Prescriptions/dental treatment/opticians
- Payment under a maintenance order or Child Support Agency assessment
- Mobile phone (at a reasonable monthly cost)
This list is not exhaustive, and other expenses can be considered.
Some examples of what does NOT constitute allowable expenses include:
The Official Receiver will endeavor to consider your views concerning what is 'reasonable' or necessary spending for your circumstances.
Points to Remember
Will bankruptcy remove ALL of my debts?
Being discharged from bankruptcy
Trust Deeds (Scottish Residents Only)
Alternatively, to discuss bankruptcy or any other debt solutions, please call 1Stop Money on 0800 012 4039 or fill in the online form and a 1Stop Money broker will contact you as soon as possible.
1Stop Money - your first stop for finding the debt solution you need.