Bankruptcy and Income Payments Agreements and Orders
During the period between being declared bankrupt to the date of your discharge (usually 12 months, unless a suspension application is made against you), a trustee will try to seek to negotiate an Income Payments Agreement ('IPA') with you in circumstances where it appears that you have surplus income over and above the amount needed for your reasonable domestic needs. If an IPA cannot be agreed with you on a voluntary basis before you are due to be automatically discharged from bankruptcy, the trustee, will usually apply to the court to obtain an Income Payments Order ('IPO') against you.
What is the procedure?
The procedure for approving and accepting an IPA is set out in out in rules 10.115 and 10.116 of the Insolvency (England and Wales) Rules 2016 ('the Rules').
An IPA or IPO will last for a period of three years and it therefore continues to bind you beyond your discharge from bankruptcy. If your refuse to enter into an IPA with the trustee, the trustee must bring an IPO before you are discharged from bankruptcy under section 310(1A) of the Insolvency Act 1986 ('the Act').
What is classed as surplus income?
Surplus income captures all additional income after deducting all reasonable domestic needs such as rent, utility bills and other household expenditure, child maintenance and other usual living costs.
Your contribution level under an IPA will usually be reviewed every few months, depending upon the agreed terms. The trustee will ask you to complete an updated income and expenditure form. If surplus income is available, following the review, you will be required to pay an agreed sum of money to the trustee after all reasonable living costs. You can negotiate this with them to prevent any further court action.
The Official Receiver ('OR') will make an objective assessment of a bankrupt's income and expenditure, assessed by reference to the Office for National Statistics' Living Costs and Food Survey and their internal Household Expenditure Spreadsheet ('HES'). The HES is used as a benchmark and the bankrupt's outgoings are assessed against the national average. The Insolvency Service has published guidance on assessing whether an IPA or an IPO is appropriate which can be accessed through the this link.
If you are receiving a pension contribution under an approved and registered pension scheme, this will not be captured in an IPA.
Additionally, if any inheritance is left to you whilst the IPA or IPO is in effect, the trustee cannot usually claim this or take it into account as it is not considered income for tax purposes and therefore will not be captured within the meaning of surplus income.
What if you don’t pay?
If you miss an IPA payment, you will normally be chased by the solicitor or trustee. If you don’t pay any missed payments within a reasonable timeframe or negotiate a new arrangement with the trustee, they could take court action to recover sums due. They could apply for an IPO at this stage and/or seek to take payments straight from your wages.
What if my situation changes during the IPA or IPO time period?
Your IPA contributions can be adjusted to ensure you can still afford them. If your employment changes and/or your monthly income reduces meaning you cannot afford the IPA payments, you should first contact the OR or the trustee and advise of your new circumstances. It will then be usual for them to ask you to compete a revised income end expenditure statement and evidence in support. You should not delay in doing this as there is a real risk that further court action could be taken to collect the payments you’ve missed, or even much more serious consequences such as an application for a bankruptcy restriction order.
If it is the case that the OR/or trustee agree to your change in circumstances, the IPA agreement can simply be varied without the need for court intervention. For IPOs, the trustee will be required the bring an application to varying the order as required. If the trustee unreasonably refuses to vary either an IPA or IPO to reflect your changed circumstances, you will always have the option to apply to the court to vary either the IPA or IPO yourself.
In our experience, many bankrupt’s find themselves in a situation where they feel pressured to sign an IPA to avoid a lengthy suspension of their discharge. Whilst signing an IPA can, in some circumstances, allow for an earlier discharge, it is important to ensure that you have understood the terms of the IPA you are agreeing to and ensure that they reflect the provisions under the Act and the Rules.
Articles are intended as an introduction to the topic and do not constitute legal advice.