This snapshot, taken on 09/07/2011, shows web content selected for preservation by The National Archives. External links, forms and search boxes may not work in archived websites.
|
Income
payment orders/agreements (ipo/ipa) After making a bankruptcy order, you no longer have to make payments to most of your creditors. So you may find you have more income than you need to pay your everyday living expenses. One of the aims of bankruptcy is that creditors should receive at least part payment of what they are owed. To achieve this, your assets will be sold and the money will be split between your creditors. Also, the official receiver or your trustee in bankruptcy will ask you to agree to make contributions towards your bankruptcy debts, if you can afford to, for a period of time - normally 3 years.
The following should all be a link to each question, on the index page of the Ref Guide.
What is an income payments agreement or income payments order? Both an income payments agreement (IPA) and income payments order (IPO) require a bankrupt to make payments towards their bankruptcy debts from their income, if they can afford to. The official receiver considers the bankrupt’s monthly household income and expenditure when deciding whether the bankrupt can afford to make payments. If you are bankrupt and have more income than you need to pay for your own and your family’s reasonable day-to-day living expenses, the official receiver will ask you to make payments under an IPA. If you do not agree, the official receiver (or your trustee in bankruptcy if an insolvency practitioner has been appointed) will apply to court for an IPO. An IPO is a court order, so if you don't keep up the payments, your trustee may ask the court for an order suspending your discharge from bankruptcy, or they can ask for money to be taken directly from your wages, or take other legal action to recover the unpaid amounts. ‘Family’ includes everyone living with and dependent upon you. This means children, and any adults who don't have an income. The official receiver or the court assesses what expenditure is ‘reasonable’ by examining all the circumstances of the individual case. There is no fixed amount for an IPA or IPO and each case will depend on individual circumstances.
How long does an IPA or IPO last? The payments will usually continue for three years.
What if my income changes when I am paying an IPA or IPO? You must contact your trustee (who may be the official receiver) immediately. You will be asked to fill in a form that gives details of your new income and your current spending. Your IPA or IPO may be changed to take account of the change in your circumstances. If your income has gone down, the trustee may decide to suspend your payments under the IPA or IPO until your situation improves. If your income has gone up, the trustee may decide to increase your payments under the IPA or IPO.
What happens if I receive a lump sum while I am paying an IPA or IPO? You may be asked to make a one-off payment from the lump sum to cover the amount left to pay on the IPA or IPO. This can happen even if you are discharged from bankruptcy. The amount claimed will vary, depending on whether you are discharged when you receive the lump sum and the time left to run on the IPA or IPO.
What happens if I miss a payment under my IPA or IPO? If you miss a payment, your trustee will ask you for an explanation and, where possible, arrange for you to pay the arrears over a short time. If the problem is more long term, such as a drop in your income or a necessary increase in your spending, the trustee will look at the situation again. If your trustee is satisfied that an IPA or IPO is no longer appropriate (for example because you have lost your job or your income has dropped) your trustee will tell you that payments will be suspended or reduced until the situation improves. If this happens, you must tell your trustee if things improve before the term of the IPA or IPO ends. If you can at any time restart the payments or increase them, the IPA or IPO will continue from that point. However, the agreement or order will end on the originally agreed date. If you miss making one or more payments, and do not contact your trustee to tell them about any difficulties you have making the payments, the trustee may apply to the court for an order suspending your discharge from bankruptcy. The trustee can also take steps to recover the money you owe, including applying for another bankruptcy order against you. Please note that if you don't make a payment under an IPO, you are in contempt of court and the court may punish you.
Is there a minimum amount that can be paid under an IPA or IPO? The official receiver will only ask for an IPA or IPO if you can make a minimum payment of £20 per month. Where the payment would be below this amount the cost of collecting the payments would be more than the payments made.
Will I be able to keep any of my disposable income after paying my and my family’s reasonable living expenses? Normally, if you have more than £20 disposable income per month you will be expected to pay it all as your IPA or IPO payment. So the more disposable income you have, the more you will have to pay. If you have less than £20 disposable income per month this will not be taken under an IPA, so you will be able to keep it.
My only income is from state benefits. Does this mean I won’t have to pay under an IPA or IPO? The official receiver will not ask for an IPA or IPO if your only source of income is state benefit payments. ‘State benefits’ is all forms of income supplement and support provided by central or local government including, but not limited to :- income support, job seeker’s allowance, disability living allowance, incapacity benefit, council tax benefit, state retirement benefit, child benefit and all forms of tax credit (child, working and pension).
My income is made up of state benefits and money I earn from working. Will I have to pay under an IPA or IPO? The official receiver will look at whether you have any non-benefit income. If you do, you may have to pay under an IPA. What you need to cover your and your family’s reasonable day-to-day living expenses would be deducted from your total income - including all state benefits. This would show whether you have any disposable income. If the official receiver is going to ask you for payments under an IPA, the amount of any payment would have to come entirely from any income that is not benefits. The official receiver would include your total income (including state benefits) in the calculation of surplus income, but only the money you earn from working would provide the payments under the IPA or IPO.
My only income is from my student loan. Does this mean I won’t have to pay into an IPA or IPO? The official receiver will not ask for an IPA or IPO if your only source of income is from a student loan.
My income is made up of my student loan and money I earn from working. Will I have to pay into an IPA or IPO? The official receiver will look at whether you have any non-student loan income. If you do, you may have to pay under an IPA. What you need to cover your reasonable day-to-day living expenses would be deducted from your total income - including your student loan. This would show whether you have any disposable income. If the official receiver is going to ask you for payments under an IPA, the amount of any payment would have to come entirely from any income that is not your student loan. The official receiver would include your total income (including your student loan) in the calculation of surplus income, but only the money you earn from working would provide the payments under the IPA or IPO.
What kind of expenditure is classed as being ‘reasonable day-to-day living expenses’? Normal monthly expenses, would include rent or mortgage payments (which are reasonable for the area you live in and the size of your family), food, heating and lighting, etc. Below are some examples of things that can also be treated as reasonable expenses:
Other expenditure items that could be considered:
This is not meant to be a complete list, and other expenses could be considered.
What kind of expenditure would not be classed as ‘reasonable day-to-day living expenses’? The following are examples of expenses which are likely to be disallowed (unless there are special circumstances):
The official receiver will always consider your views about what is 'reasonable' or necessary spending for your circumstances. Again, the list is not meant to be complete.
Will I have to tell the official receiver how much my husband/wife/partner earns? You will be asked to give details of your spouse’s or partner's income, as it is assumed that they will contribute to the household expenses. The official receiver will also need details of payments from any other member of the household who contributes to household expenses. If you are not willing to give this information, you will not be able to claim that you pay the full amount of all household expenses.
I’ve been told that I have to make payments under an IPA because I’ve been given a ‘nil tax’ code. What does this mean? If you pay tax under PAYE, HM Revenue and Customs (HMRC) will usually apply a 'nil tax' code to you for the rest of the tax year in which you were declared bankrupt. This means that soon after your bankruptcy, your employer will be told not to take any more income tax from your earnings for the rest of the tax year. HMRC applies nil tax codes for various reasons, so the new tax code will not tell your employer you are bankrupt. The nil tax code does not mean no tax is due. It just enables HMRC to claim the whole of your unpaid tax for the year of your bankruptcy. There will be extra money in your pay because of the nil tax code. This additional income can form the basis of an IPA or IPO where it provides you with surplus income. In these circumstances a nil tax (or NT) IPA or IPO based on this additional income may be the only amount you have to pay. Once your tax code changes at the end of the tax year, the IPA or IPO will stop. If you are paying an IPA or IPO because you have other surplus income, the monthly amount paid under the IPA or IPO will reduce when your tax code changes.
Example of a ‘nil tax’ code IPA Say you are made bankrupt in September and, after all reasonable expenses are deducted, you have surplus income of £300 a month. Under an IPA or IPO you will be asked to make payments of this amount (£300 a month) for 36 months. If you are in PAYE employment, a nil tax code means that the tax you would have paid (say £400 per month) is now available as additional surplus income, to be collected under the IPA or IPO. This means you would pay £300 a month from the date the IPA or IPO began, for 36 months. You would also pay an extra £400 per month (total £700 per month) during the period that HMRC gives you a nil tax code, up to and including the following March, when your tax code changes at the end of the tax year.
Example 1 All earned income. Total earned income £950.00 Total outgoings (£460.00) Real disposable income £490.00 IPA of £490.00 recommended.
Example 2 Part income part state benefits Earned Income £650.00 State Benefits £300.00 Total income £950.00 Total outgoings (£460.00) Real disposable income £490.00 IPA of £490.00 recommended as it does not exceed the bankrupt’s earned income.
Example 3 Part income part state benefits Earned Income £300.00 State Benefits £650.00 Total income £950.00 Total outgoings (£460.00) Real disposable income £490.00 IPA capped at £300.00 which consists of the bankrupt’s earned income.
Example 4 Part bankrupt’s income, part partner’s income ( state benefits). Income of Bankrupt £650.00 Income of Partner (state benefits) £300.00 Total income £950.00 Total outgoings (£460.00) Real disposable income £490.00 Bankrupt’s real disposable income is £335.00 (68% of total household income). IPA of £335.00 recommended.
Example 5 Part income and part state benefits. Bankrupt’s income – state benefits £650.00 Partner’s earned income £300.00 Total income £950.00 Total outgoings (£460.00) Real disposable income £490.00 No IPA would be sought as the bankrupt’s income is solely derived from state benefits.
Example 6 All earned income Total earned income £950.00 Total outgoings (£935.00) Real disposable income £15.00 No IPA would be sought as the bankrupt has less than £20 per month disposable income.
|