Income Payments Orders

May 2007

Introduction

1. What is the purpose of an Income Payments Order?

One of the aims of bankruptcy is that the creditors should receive part or full payment of what they are owed. Creditors often feel aggrieved when they believe that the bankrupt continues to enjoy a good lifestyle whilst the debts remain unpaid. To address this point, section 310 of the Insolvency Act 1986 provides that the trustee can apply to the court for an order that the bankrupt (or his/her employer) make regular payments from his/her income into the estate from ‘surplus’ income. Such an order is known an Income Payments Order (or IPO).

The Enterprise Act 2002 (EA2002) extends this idea by introducing the Income Payments Agreement (IPA) to run alongside IPOs. IPAs are entered into voluntarily however, there is a formal binding agreement between the official receiver and the bankrupt that the contributions will be made. In effect, the IPA works in the same way as an IPO but removes the need for the official receiver or trustee to make an application to court.

NB Where the bankrupt has income in excess of expenditure, an IPA should be obtained in preference to an IPO, which should only be sought in those cases where the bankrupt does not consent to the proposed IPA.

For further information see Case Help Manual part: Income Payments Agreements.  

2. How are such cases identified?

An application for an IPO will only be made by the official receiver as trustee i.e. after the no meeting notice has been issued or after a first meeting where no insolvency practitioner was appointed and where the case is deemed suitable for an IPA but the bankrupt refuses to consent.

The bankrupt should in all cases answer the questions regarding income and outgoings which will appear in either the statement of affairs in debtor’s petition cases, or the B40.01 (PIQ B) preliminary information questionnaire (PIQ) in all other cases.  Both the PIQ and statement of affairs in debtors’ petition cases, ask for details of the bankrupt’s income and normal monthly expenses such as rent, food, heating and lighting, clothing etc and should be completed before any interview and supporting evidence provided such as payslips and utility bills. It may be that the information provided is sufficient for a decision to be made that there is no excess income and no further action is then required in respect of the bankrupt’s income. 

For further detailed guidance on what the official receiver may or may not consider permissible when considering the bankrupt's income see Technical Manual Chapter 31 paragraphs 31.7.59 - 31.7.63. 

3. Amount for which an order can be sought.
April 2008

As with an IPA, an IPO should not be sought if the effect of which would be to reduce the income of the bankrupt below the level considered adequate to meet the reasonable domestic needs of the bankrupt and his/her family.

There is no fixed amount for which an order should be sought and each case is decided on its own merits after the bankrupt has given details of his/her income and expenditure. Payments should normally be made monthly. The rate of payment under an IPO has been developed along similar lines to those used by the courts themselves in assessing rates for attachment of earnings orders and payment of judgment debts by instalments (see Household Expenditure Spreadsheet on the Technical Section intranet site). Guidance as to what amount is appropriate can also be obtained by using the Income Payments Calculator available on the Technical Section intranet site, which provides assistance in calculating expenditure and whether, after assessing reasonable expenditure, the bankrupt is in receipt of sufficient surplus income to be able to contribute to an IPO.

Where the bankrupt is self-employed, a fixed monthly figure may not be appropriate for the IPO as income may be variable. The IPO will have to be tailored to meet the individual circumstances of the case and should be reviewed in a more active way than those from individuals in paid employment.

Generally, once the real disposable income has been assessed, that is the income remaining after all expenditure necessary to finance the reasonable domestic needs of the bankrupt and his/her family, 50-70% of this should be sought by way of monthly payments. Usually, the higher the real disposable income, the higher the percentage that should be sought. Guidance as to what amount is appropriate is contained in the IPO table (T31/03 Annex 2)  (see also Household Expenditure Spreadsheet to be found on Technical Section’s home page on the Intranet).

If the bankrupt is in receipt of benefit and other income, and has surplus income above that required to meet his/her reasonable domestic needs, the official receiver should still consider the possibility of obtaining an income payments order.  Any calculation to identify surplus income should include all available income, including state benefits, which includes child tax credit. The only exception to the inclusion of state benefits in an income payments calculation is where a bankrupt is in receipt of child benefit, which is not an income based benefit (unlike child tax credit).

It is the income from the sources other than the benefit(s) which is providing the payments under an IPO, so if the bankrupt is in receipt of benefits and has surplus income, an IPO contribution should only be sought to the extent of the non-benefit income.

An IPO should not be sought where the bankrupt’s only source of income is state benefit payments. It is unlikely that where a bankrupt’s income solely comprises state benefits any surplus will arise, the exception to this is where the bankrupt is in receipt of non-means tested benefits, such as Disability Living Allowance.

If a bankrupt who is solely in receipt of benefits has surplus income and has agreed to contribute on a voluntary basis, no enforcement action can be taken if the bankrupt fails to make agreed voluntary payments, and voluntary payments cannot be enforced via an IPO. 

4. What can be deemed as reasonable expenditure?

November 2007

A consistent approach should be taken to those items that may, or may not, be allowed when considering whether the bankrupt’s expenditure is reasonable. The official receiver/trustee must maintain this approach when considering the expenditure claimed by the bankrupt, and must also ensure that the expenditure items allowed in any IPO calculation are sufficient to ensure the reasonable domestic needs of the bankrupt and his/her family are met within that expenditure.

The examples listed below represent a small sample of items which may be considered:

• TV licence, household and car insurance and car road tax may be treated as part of the bankrupt’s domestic needs. 
• As far as mobile phones are concerned, costs must be reasonable and it may be necessary to disallow part of the costs if they are excessive or only for social use. If the calls are largely work related, a check should be made whether the employer is reimbursing the bankrupt for those calls.
• Items such as gym membership, private healthcare insurance and additional pension contributions to enhance a pension should not be treated as allowable unless there are extenuating circumstances.
• As far as holidays are concerned, it is accepted that a bankrupt is entitled to a break from routine and some allowance may be made for a modest holiday.  If a bankrupt disputes the amount considered reasonable by the examiner, he/she should be advised that any additional holiday cost will have to be funded from any surplus income left with the bankrupt after deduction of the income payments order contribution.
• An allowance for clothing may be included in the calculation, particularly in families with children. What is reasonable will depend on the individual circumstances of the bankrupt and his/her family. In general, where the bankrupt is claiming an amount for clothing in excess of the figure relevant to their family circumstances in the  Household Expenditure Survey, they should be asked to provide an explanation and evidence as to why they require the extra allowance.
• After school clubs can be allowed if they are used to provide childcare whilst the parents are working but if used simply for convenience, it is up to the bankrupt to fund it. In the same way, it would seem reasonable to allow one extra-curricular class per child but any additional classes should be funded from any surplus income.

Technical Manual Chapter 31.7 Part 2 provides specific guidance regarding reasonable and allowable expenditure.  As with all expenditure, any amounts in excess of the guidelines provided may be funded from surplus income left with the bankrupt after deduction of the income payments order contribution. 

5. Application.

(November 2007 and amended September 2010)

Application must be made to the court which is dealing with the bankruptcy to fix a date and time for the court to hear the application. This should be at least 6 weeks ahead as the bankrupt must have 28 days notice of the hearing. 

An IPO may be made on an application instituted (i.e. made) before the date of discharge.

The official receiver must then prepare a report on form IPORAC. The bankrupt is informed of the hearing date on form IPONA enclosing a copy of the report and application and informed that he/she has the opportunity at the court hearing to show why an order should not be made or why the terms of the order sought by the official receiver should be varied.  

The bankrupt is also informed that he/she is required to attend the hearing unless at least 5 business days prior to the hearing he/she sends to the court and the trustee written consent to the order. In cases where the petition was presented before 6 April 2010 the written consent must be sent 7 days before the hearing.

6. Staggered or stepped orders.

These orders require a bankrupt to begin making payments with immediate effect but they allow for the amount of the payment to increase after a certain period of time e.g. 3 months. This type of order could be made where the bankrupt is deemed to be making excessive mortgage payments, for instance, and/or where the payments are being made by the bankrupt on behalf of himself and one or more other parties who have separate incomes and could be expected to make some sort of contribution to the mortgage payments. If the court agrees, during the initial 3 month period, for example, the bankrupt would be expected to come to an arrangement with his mortgagee (bank or building society, etc.) to make lower mortgage payments or find alternative accommodation. Such an order should not be sought however if it is likely to lead to the bankrupt becoming homeless.  

7.“NT” tax code Income Payments Agreements and Income Payment Orders

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8. Cases to go to RTLUs.

Once the IPO is effective, and if there are no other assets in the case that would justify the appointment of a trustee, it will be for the appropriate RTLU to administer the payment collection and monitoring. In those cases where there are sufficient other assets to warrant the appointment of a trustee, the official receiver should not neglect to take steps necessary to secure the payments under the IPO pending the appointment of an insolvency practitioner, by instructing the collection agents in the usual way.  

The transfer front sheet should be completed for each case. The case will then be transferred into the RTLU using LOIS screen 41 (see LOIS Workbook: Transfer of cases to the RTLU). See also “Protocol Governing the relationship between Official Receivers (ORs) and Regional Trustee Liquidator Units (RTLUs)“ which can be found on the OROS homepage.

9. Instructions to Moon Beever

November 2008

The current contract for the collection of monies due under an Income Payments Order is with Moon Beever, solicitors of 24-25 Bloomsbury Square, London, WC1A 2PL, DX 388 Chancery Lane. The telephone number is 020 7637 0661 and the contract manger is Graham McPhie. No fee is payable if a realisation is not made. Otherwise, the fee for the collection of IPOs is fixed at 5% of the sum realised plus VAT. 

IPO instructions will normally be sent via e-mail to the appropriate team in a spreadsheet format (see below) along with a scanned copy of the IPO, once obtained. Moon Beever will acknowledge, within three working days, receipt of each instruction to the originating official receiver, via their Case Handling System and the case clerk will need to log on to their system to view. There will be no paper confirmation via letter.

The following information will need to be appended to the instruction in every case:

• the name and court details of the relevant case, together with the name of the official receiver and details of his/her office
• the name and address and contact number of the bankrupt
• date of the bankruptcy order and the date and terms of the IPO
• amount of payments and frequency of expected payments
• date first payment due
• the bankrupt’s employer’s details, if available

The spreadsheet available runs from column A to AD. The following information should be entered:

• bankrupt’s details (A-J)
• IS reference, e.g. case clerk (K)
• date of bankruptcy (L)
• income payments details (M-T)
• case details (U)
• bankrupt’s employer’s information (V-AE)
• any unknown data must be left blank 

All this information should be supplied to allow Moon Beever to contact and set up the income payments. In the event of non co-operation it will allow Moon Beever to trace or implement the payment via the bankrupt’s employer; reducing the need for further instruction.  

10. Who do I contact at Moon Beever?

The unit Moon Beever have created to run this contract will have a regional point of contact and therefore the instructing case clerk should send their e-mail to the appropriate team (see the contact details below). It is for the local office to determine the frequency and volume of their instructions i.e. an instructing spreadsheet could have a single case or multiple cases.

Regional contact details for OR and RTLU staff:

Anglia Region            01376 557200

angliais@moonbeever.com

London and South East Region          01376 557201

londonis@moonbeever.com

Midlands Region       01376 557202

midlandsis@moonbeever.com

North East Region    01376 557203

northeastis@moonbeever.com

North West Region   01376 557204

northwestis@moonbeever.com

South West Region   01376 557205

southwestis@moonbeever.com

Where Moon Beever has been instructed on a case, the official receiver or RTLU office receiving an Income Payment query should refer the caller to Moon Beever using these details.

Address:

Moon Beever Solicitors

120 Avenue West,

Skyline 120,

Great Notley,

Braintree,

Essex CM77 7AA

Telephone: 0844 736 9775

Moon Beever also provides an online enquiry facility for staff which allows owning offices full access to cases for monitoring progress, viewing payments received, to see all letters and case history and receive and send instructions via their website at www.moonbeever.com. Each office and RTLU has a login account and password to allow access and instructions for use can be found on the OROS homepage.

Where the bankrupt has already started making payments to the official receiver direct, this information should be passed to Moon Beever via the instructing spreadsheet so that these payments can be taken into account.

If the case is an NT tax coding IPO or there is an element of NT tax coding element in the IPO, Moon Beever must be informed via the instructing spreadsheet, so that once the NT tax code has been applied the collection of payments can start as soon as possible.

11. What if the individual defaults in making payments?

Moon Beever will ensure that a standard reminder letter is sent to any bankrupt who misses any payment within three days. If Moon Beever makes an arrangement for the bankrupt to make good missing payments and the bankrupt fails to adhere to the arrangement, Moon Beever must notify the official receiver within three days of the failure.

If an individual contacts Moon Beever to make him/her aware that there are temporary financial difficulties which in the opinion of the contractor will be overcome within two months, the contractor will have the discretion to agree the terms under which any missed payments are made good and to ensure that the schedule of payments is brought up to date without the need to refer the matter back to the RTLU.

Where a response is received from the individual, with supporting evidence, which indicates that a reduced IPO may be appropriate, the RTLU will prepare an application to court to vary the IPO to seek a reduced amount or to seek payment directly from an employer or third party. The RTLU will liaise with the originating official receiver for a court date. The local official receiver will be requested to attend at court for this variation hearing but the RTLU will prepare and serve all necessary paperwork. Moon Beever must be advised of the hearing date and confirmation obtained regarding payments made up to the date of hearing and provide such information as is deemed necessary in relation to any court application.

For more information on varying an IPO see paragraph 12 varying, reviewing or discharging an IPO.

Where any situation cannot be resolved by Moon Beever the situation will be referred to the RTLU. If the RTLU is satisfied that the an IPO is no longer appropriate, because of the loss of a job or substantial reduction in income, the RTLU will inform the individual that payments will be suspended until the situation improves, with a reminder that the individual must notify the RTLU if things improve before the term of the IPO expires. Once the individual is in a position to make payments again the official receiver will issue fresh instructions to Moon Beever. The payments will continue from that point and no attempt will be made to collect the missed payments. If no further payments are made, the RTLU will treat the IPO as having lapsed and no further action will be taken.

If the official receiver makes the decision to suspend collection under an IPA because of a change in the bankrupt’s circumstances, Moon Beever will be notified of that decision within 7 working days and the matter will be deemed concluded.

The RTLU policy for dealing with defaulters should be followed by official receivers offices in cases which are retained in office during an investigation or for other reasons.

It should be noted that although there is still an option to suspend discharge, this should only be considered in the most extreme cases.  

12. Varying, reviewing or discharging an IPO.

An IPO can only be varied, reviewed or discharged by order of the court although either the official receiver as trustee or the bankrupt can apply to have the order varied or discharged. A formal application must be made to the court (form IPORAV) .The court can change the terms of the order (vary) or it can order that the order be discharged (ended). Any order made must then be served on the bankrupt and other interested party e.g. an employer.

If the bankrupt’s income was reduced making it impossible to maintain the payments then application could be made to the court to vary the amount to be paid or to discharge the order so that the bankrupt no longer has to make the payments.

Similarly, if the bankrupt’s income increases to such an extent that the trustee believes that he/she has more disposable income and is therefore able to pay more than the court ordered, application can be made to the court to review the order.

Where the bankrupt has not been making the payments the varied order may state that the bankrupt’s employer should deduct the payments from the bankrupt’s salary and forward them directly to the trustee. The order also allows the employer to deduct an administration fee to cover his administration costs. Where a bankrupt is self-employed but there is one person for whom he/she normally works, application can be made for that person to make the deductions in the same way as an employer would. However, this approach should only be taken where the bankrupt cannot pay rather than will not pay as there is no desire to add to any tension between the bankrupt and his/her employer.

The court, if it thinks that "no sufficient cause is shown for the application", may dismiss the application.

If the court does not dismiss the application a date and time for the hearing will be fixed and the applicant must give the other party at least 28 days notice of the hearing. If the official receiver is the applicant, a copy of his/her report must be sent to the bankrupt together with notice of the hearing. Where the application is for an IPO to be varied so that the employer makes the payments, the application may be made without notice to any other party.

13. Can the bankrupt’s discharge still be suspended?

There is no reason why the official receiver may not apply to the court for an order suspending the bankrupt’s discharge if he defaults, such an application could encourage the bankrupt to get the IPO back on track. However, as a bankrupt will be discharged generally within 12 months of the date of the bankruptcy order, this may not be a particularly effective way of seeking compliance.  

14. Income review in early discharge cases.

In those cases where the order was made on or after 1 April 2004, section 256 of EA2002 allows the official receiver to reduce the 12 month period of the bankruptcy further by filing a notice (EDNOT) stating that an investigation of the conduct and affairs of the bankrupt is unnecessary or concluded. This process will only be relevant to those cases marked NFI (early discharge) which have met the criteria set out below.

Once the official receiver has issued the report to creditors (form CAR A), he/she must allow a 3-month period for any responses from creditors to the report. In those cases where there is no IPA or IPO and the official receiver is trustee, the official receiver should  carry out an income review by sending to the bankrupt a form EDREV enclosing an income and expenditure questionnaire (form IPOQ), which is required to be completed and returned within 14 days. The official receiver can choose to bypass the checking of a bankrupt’s income if it is thought unlikely that the position would have changed since they were first assessed for an IPA/IPO –  if, for example, their only source of income at the date of the bankruptcy order was a state pension. The reason for the bypass should be recorded on LOIS (CA25). If the bankrupt fails to return the form within 21 days or his/her explanation for submission after 21 days is not accepted when the completed form is finally received, the early discharge process should not be pursued and the bankrupt will have to wait for the full 12-month period before obtaining discharge.

After the submission of the IPOQ within 21 days or acceptance of submission after 21 days and there is no change in circumstances, the official receiver should issue a formal letter (form EDNCR) notifying the creditors that he/she intends to file the early discharge notice at court (form EDNOT) with the result that the bankrupt will be discharged on the date that the court seals the notice. Unless the creditors respond to the letter with full details within 35 days, the official receiver may file the notice.  

If an insolvency practitioner has been appointed as trustee, he/she should be telephoned by the case officer in advance of sending out the EDNCR to find out whether there are any problems with the case, which might lead the official receiver to the conclusion that early discharge should not be considered. A formal note of the telephone conversation should be kept using form EDTIP. If there are no matters arising, the file note need only record that fact and the name of the person spoken to in the insolvency practitioner's office. Any matters brought to the attention of the case officer during the telephone call should be drawn to the attention of his/her line manager for discussion with an assistant official receiver, who will arrange for matters to be followed up with the insolvency practitioner in writing.

For further information see Case Help Manual part: Discharge from Bankruptcy.

15.  What has happened to IPOs in existence at 1 April 2004?

There are transitional provisions for IPOs which were in existence as at 1 April 2004, the date on which the provisions of EA2002 came into force.

Where an individual was made bankrupt but not discharged prior to 1 April 2004, he/she was a “pre-commencement bankrupt” and would have been discharged from bankruptcy either on 1 April 2005 or his/her due discharge date, whichever was the earlier.

Where an IPO was in force in respect of a pre-commencement bankrupt but the order did not specify the date at which it would have ceased to have effect, there is some confusion regarding the date at which the IPO should cease. Please note that payments should be sought until discharge.

In the case of a second time bankrupt due to be discharged on or before 1 April 2009, payments under an IPO would only be expected for 3 years if there is no date specified on the IPO.

Where there was an IPO which specified a date at which the IPO no longer had effect, it will remain in force until that specified date, regardless of whether the bankrupt has been discharged under the transitional provisions. The IPO will then lapse. However, the transitional provisions provide in such cases that a pre-commencement bankrupt may apply to the court to vary an IPO or to provide for the IPO to cease to have effect earlier than the date specified on the order.  

For more information see Technical Manual Chapter 31 paragraph 31.7.57.

Notes

a A copy of the Service Level Agreement with Moon Beever can be found on the OROS homepage.

Where can I find out more?

Insolvency Act 1986

Section 310 and 310A.

Insolvency Rules 1986

Rule 6.189 - 6.193.

LOIS Workbooks

IPAs and IPOs  

Household Expenditure Spreadsheet -Technical Section homepage

Income Payments Calculator -Technical Section homepage

Technical Manual:

Chapter 31.7 – Income Payments Agreements and Income Payments Orders

Case Help Manual: