Bankruptcy is one of several solutions available to those unable to repay their debt. It usually lasts for 12 months, during which time, repayments to some or all creditors cease, and when complete, the debt may be cleared. However, by removing the need to repay creditors, it will often result with the individual having more income left over. As the purpose of Bankruptcy is to ensure the creditors are repaid at least some of the money owed, once essential expenditure has been calculated, depending on the level of income remaining, an Income Payments Agreement (IPA) or Income Payments Order (IPO) may be issued.
When will an IPA/IPO apply?
The official receiver will assess how much income the debtor receives and calculate all reasonable living expenses for the individual and any dependent family. If there is a reasonable amount remaining, they will ask the individual to enter an IPA so that some of the remaining income is repaid to the creditors. Should the individual refuse, then the Official Receiver (or the nominated trustee) can apply to the courts for an IPO. As this is a court order, should the repayments not be made, discharge from bankruptcy could be delayed and the repayments could be taken directly from the wages.
Amount and duration of an IPA
As the amount paid under the IPA is based on any funds remaining after essential living costs, there is no fixed amount. If the individual has more than £20 of disposable income after essential expenses, it would be expected that all of this would go towards the IPA. If it is less than £20, the costs of collection would mean it is not worth it and therefore the IPA would not be applied. They usually continue for 3 years.
Changes to financial circumstances while an IPA or IPO is in place.
If there are any changes to financial circumstances, the Official Receiver or appointed trustee should be notified immediately. For a change to income, a form will need to be completed. Should income increase, then the IPA/IPO contributions may also be increased accordingly. Should income decrease, it is likely that the payments will also decrease, or possibly even suspended. If the individual receive a lump sum, it is probable that a one off payment will be requested. The amount will vary depending on if the bankruptcy has been discharged.
State benefits and partial benefits
Where an individual’s only source of income is from state benefits (eg income support/job seekers allowance etc) the official receiver will not request an IPA. If there is a combination of benefits and income from work, then the total income will be reviewed as a whole, but the IPA payment would only be taken from the employment income.