December  2010

Part 5 Implementing an IPA and instructing collection agent

31.7.126 Calculating surplus income

The official receiver/trustee may be able to make an initial calculation of surplus income based on the debtor's statement of affairs and/or information in the preliminary information questionnaire (PIQ). It is essential that all income received by the bankrupt and additional income received towards household expenses from others is included in the income payments calculation, and also all expenditure necessary to cover the reasonable domestic needs of the bankrupt and his/her family must be taken into consideration. To assist in calculating the proposed IPA/IPO contribution, reference can be made to the HES (available on the Technical Section intranet page) and the  ORBS intranet page where income and expenditure can be entered into the relevant income payments calculator depending on whether it is a new agreement made on or after 1 December 2010,  or the variation of an existing agreement made before 1 December 2010. See also Part 2 of this chapter.

31.7.127 Percentage contribution under an IPA

For all IPAs agreed on or after 1 December 2010, where the bankrupt has surplus income of £20 or greater, the full amount of this surplus will be sought under an IPA,  see paragraph 31.7.27.  Where the IPA was agreed before 1 December 2010 and is reviewed after this date, see paragraph 31.7.162 for details of how to apply the percentage scale of the amount to be collected,  in the same way as when the IPA was originally calculated.

31.7.128 Considering individual circumstances

Whilst Parts 2 - 4 of this chapter and the income payments calculator(s) available on the ORBS intranet page may provide assistance in ascertaining an appropriate contribution under an IPA/IPO, it is essential that each bankrupt's case is considered on its own merits, taking in to account all available information with regard to the individual's income and expenditure. Where it is considered that a higher or lower calculation than that recommended by the calculator is warranted the examiner should note the reasons for their recommendation in the file.

31.7.129 Agreement of bankrupt and taking into account reasonable domestic need

Wherever possible the amount to be agreed as a contribution under an IPA should be discussed and agreed with the bankrupt to ensure that all income which can be considered has been included, and the bankrupt's reasonable domestic expenditure considered. The official receiver must undertake an objective assessment of the information supplied by the bankrupt relating to income and expenditure, must not attempt to prejudge what the court might regard as being reasonable in the particular circumstances of the case and must act fairly in putting the relevant facts before the court where the matter cannot be resolved. The court has stressed the importance of assessing reasonable domestic need by reference to the circumstances of each individual case, see paragraphs 31.7.18 for details of significant court cases concerning private school fees (Re Rayatt [1998] B.P.I.R. 495  and Scott v Davis [2003] B.P.I R. 1009), and paragraph 31.7.86 concerning mortgage contributions and seeking alternative accommodation (Malcolm v Official Receiver [1999] B.P.I.R 97.

31.7.130 Consent of bankrupt to the IPA

Once the official receiver/trustee has agreed with the bankrupt the amount to be collected under the IPA, the bankrupt's consent to the agreed IPA should be obtained in writing at the earliest opportunity.

31.7.131 Official receiver’s requirement to present the bankrupt with the IPA (at interview or by letter)

It is not the bankrupt's responsibility to provide a draft agreement for consideration, it is for the official receiver or trustee to provide the agreement for the bankrupt's approval [note 1]. Form IPA can be presented at interview for the bankrupt to sign or it may be sent to the bankrupt for signature under cover of form IPALET, requesting that it be signed and returned within 14 days. The official receiver may specify a longer period if it is deemed appropriate, over holiday times or the Christmas period, for example. See also paragraphs 31.7.133 to 31.7.137 for further information regarding the time in which  to request the return of the signed IPA.

31.7.132 Bankrupt required to notify official receiver of his/her decision to refuse consent

If the bankrupt decides not to consent to the IPA, he/she should notify the official receiver in writing of that decision within the same timescale as specified by the official receiver for return of the signed form.

31.7.133 Operational practice to allow a 14-day "cooling off" period following initial consent

The official receiver as a matter of operational policy should give the bankrupt a 14-day "cooling off" period to reflect upon the agreement he/she has made before it comes into effect. This is operational policy, not a legal or statutory requirement,  to ensure consistency and best practice by following the precedent of 14 days “cooling off” which is legally required in consumer credit agreements. The proximity of the date of discharge must be considered, as an IPA only comes into force when it has been signed by both the bankrupt and the official receiver or trustee prior to the date of discharge, see paragraph 31.7.9. The official receiver should not delay in signing an IPA where discharge may occur before the 14-day period has expired see paragraph 31.7.137.

31.7.134 Determining 14 days following consent given at a face-to-face interview

Following the best practice as described at paragraph 31.7.133 means that as a matter of normal practice, where the bankrupt signs the agreement at a face-to-face interview, and where the expiration of the 14 days occurs before the date of discharge, the official receiver should take no further action to sign the IPA for 14 days. If after 14 days, the bankrupt has not contacted the official receiver to withdraw consent to the agreement, the official receiver should sign and date it and on that signature, the IPA will come into force and become legally enforceable.

31.7.135 Determining 14 days where a signed agreement is returned by post

Where the IPA is sent to the bankrupt by post to be signed, allowing the 14-day period described at paragraph 31.7.133 will mean that the period of time allowed will run from the deemed date of receipt by the bankrupt, that is 2 days after the date of dispatch, by the official receiver and not from the date the bankrupt gave consent by signing the agreement. This means, for example, that if the IPA is sent to the bankrupt on 1 September, the 14-day period will run from 3rd to 17th September, and if the official receiver receives the signed agreement from the bankrupt on any date prior to that, he/she need only wait until 17th September to sign the agreement.

31.7.136 All parties required to sign the IPA prior to discharge in order to validate the agreement and bring it into force

Rule 6.193A(1) [note 2] provides that an IPA can only be entered into by the bankrupt before his or her discharge from bankruptcy. This means the IPA is valid only where it is signed by the bankrupt and the official receiver or trustee prior to discharge (see paragraph 31.7.9) [Note 3] [Note 4] [Note 5].

31.7.137 Dispensing with the 14 day“cooling off” period where it expires after date of discharge

Where the bankrupt has returned his/her signed agreement before discharge, but the date of discharge will occur before the expiry of the 14 days “cooling off” period (as described in paragraphs 31.7.133 to 31.7.135),  the official receiver should sign the agreement immediately it is received, and dispense with the 14 day “cooling off” period, which is a matter of best practice and not a legal requirement. This ensures the official receiver is acting in the best interests of the creditors by ensuring the IPA asset available to the estate is not lost.

31.7.138 Bankrupt withholds consent to IPA                        

Where the bankrupt is prevaricating or refusing to sign the IPA and their discharge is imminent, if the official receiver/trustee is concerned there will be insufficient time to obtain a valid IPA, then he/she retains the option to apply for an IPO. Section 310(1A) of the Insolvency Act 1986 [note 6] provides that an IPO may be made on an application instituted before the date of discharge. In these circumstances, provided that the application for an IPO is initiated or commenced before discharge, the official receiver/trustee may consider that an application to suspend the bankrupt's discharge as a result of non co-operation may not be necessary.

31.7.139 Copy of  agreement to be sent to bankrupt following implementation

Once the agreement has been signed and dated by the trustee or official receiver, a copy must be sent to the bankrupt [note 7] under cover of form IPAPAY, which also provides instructions for the payment of contributions under the IPA.

31.7.140 Notice to be issued to third party where they are responsible for making payments under the IPA

Where the agreement provides for payments to be deducted and paid over by a third party, a notice of the agreement must be sent to the third party. The notice must contain:

• the full name and address of the bankrupt;
• a statement that an IPA has been made, the date of it and that it provides for the payment by the third person of sums owed to the bankrupt to be paid to the official receiver or trustee;
• the full name and address of the third person;
• a statement of the amount of money to be paid to the official receiver or trustee from the bankrupt's income, the period over which the payments are to be made, and the intervals at which the sums are to be paid; and
• the full name and address of the official receiver or trustee and the address or details of where the sums are to be paid.

31.7.141 Appropriate fee to be deducted by third party making payments under the IPA

When a third party is making payments under an IPA (see paragraph 31.7.140), the third party may deduct the appropriate fee towards the clerical and administrative costs of complying with the IPA but must notify the bankrupt in writing of the amount deducted [note 8].

31.7.142 Attachment of earnings order in force prior to IPA

Where there is an attachment of earnings order in force against the bankrupt, this is an order of the court and payments should continue until the order is discharged or varied. The court may, if it thinks fit, discharge or vary such an order on the application of the bankrupt, the trustee or the official receiver in order to secure payments by the bankrupt under the IPA [note 9].  When making an application, the court’s attention may be drawn to the provisions of the IA86 at section 285(3) (limit on creditors’ actions) and section 346 (enforcement procedures), and the official receiver should seek the refund of any monies paid to the creditor since the making of the bankruptcy order.