Bankruptcy and Income Payment Orders (IPOs)
29th July 2015
In previous articles, we’ve examined such questions as “Should you go bankrupt?” and looked at issues such as “bankruptcy and your home”.
In this article, we should look at another common element of personal bankruptcy (in England and Wales) called Income Payment Agreements/Orders – both ostensibly the same thing except the “agreement” is entered into voluntarily by the bankrupt and the “order” is made by the court. This falls under section 310 of the 1986 Insolvency Act.
Once the court has adjudged you bankrupt, the next step is your initial meeting with the Insolvency Service which is usually about two weeks later. Whether the Insolvency Service elects to deal with your case “in house”, or refer it to a licensed insolvency practitioner to act as Trustee in Bankruptcy, one of the things that will be scrutinised is your income and expenditure.
An assessment will be made with particular focus on what is “fair and reasonable” in terms of your expenditure. Once this is done, a calculation will be made to determine your “disposable income”. Clearly, suitable rent, food etc will likely be deemed as reasonable – however, “luxury items” such as holidays or pay TV subscriptions will not. It is also likely that any Additional Voluntary Contributions (AVCs) to your pension fund will also need to be suspended (there has been some legal precedents established recently in respect of pensions and you should seek proper advice if this is an area of concern).
At the time or writing, the “trigger” value for disposable income to result in an IPO is £20 a month. The Insolvency Service/Trustee in Bankruptcy will then ask you to sign an Income Payment Agreement at first (will likely apply to the court for an IPO should you decline) and this will run for 3 years. During this period, you have a legal obligation to inform the Insolvency Service/Trustee of any change in your personal circumstance – for instance, if you get a promotion or inherit a sum of money, this will be taken into account and fall under the remit of the IPO (it should also be noted that IPOs can go down as well).
To illustrate the point, if you are paying £50 a month for a pay TV subscription which is then deemed a “luxury”, this will go toward the IPO for 3 years resulting in you paying the Insolvency Service/Trustee £1,800 for this alone.
It should be noted that if you are discharged from your bankruptcy (usually automatic on the first anniversary of the order being made) without an IPO being made, one cannot be retrospectively applied.
This is clearly just a general guide and not to be taken as formal advice as every case is different. If you are considering bankruptcy and this is an area of concern, do please seek proper advice.
Please be advised that all views expressed in these posts are those of the author and not of James Rosa Associates ltd.