What are income payments orders or agreements in bankruptcy?
When a person is declared bankrupt in England or Wales the Insolvency Service are appointed by the Court to deal with that person and to look at their individual circumstances. In straightforward terms the Insolvency Service are instructed to look into the conduct of the bankrupt, their general situation, assets and income.
In every bankruptcy case the Insolvency Service has a duty to the creditors. Their role is to recover any assets that the person may have, and also to look at other ways that the creditors may receive some money back from the person that has declared bankruptcy. The main ways that money can be recovered for the creditors is seizure and disposal of assets, and by taking any disposable income from the person once they have paid their reasonable living costs. The recovery of disposable income is made by way of a three year income payment agreement (or order) also known (by their initials) as an IPA or IPO.
How long do income payment agreements last for in bankruptcy?
An income payment agreement will normally last for 36 months. This agreement is a separate issue when compared with a bankruptcy order which will normally last for 12 months. For this reason a person may be fully discharged from their bankruptcy, but still have at least two years further to run with regards to their income payment order. In this situation you are no longer bankrupt but you are still under the terms of the payment agreement.
In certain cases a bankruptcy payment order may run or cover an even longer period of time. For example, if you are working and a bankruptcy payment order is applied, this may be suspended if you lost your employment and income. Then, if you regained employment a few months later, the payment order may be reassessed and at this stage you would recommence payments. In this type of situation the payment order duration could be in excess of 36 months due to the suspension of payments while there is no income.
What is the difference between an Income Payment Agreement (IPA) and an Income Payment Order (IPO)?
When the Insolvency Service decides that a person in bankruptcy has disposable income they will raise an Income Payment Agreement. This form sets out how much the monthly payment has been calculated at, and sets out various stipulations that the person must also agree to.
If, for some reason, the person in bankruptcy does not agree to the payments that have been proposed the Insolvency Service may decide to enforce the payments through the Court System. If the Court agrees that the payments are correct and enforce the agreement this then becomes an Income Payment Order.
Are income payment agreements or orders always applied in bankruptcy?
If you are declared bankrupt and have no income, or your income is solely derived from benefits, an income payment agreement would not be applied or considered. It is only when you have income from employment and also disposable income that payment agreements are applied.
If you are working it does not necessarily mean that you will have a payment agreement applied. If you have only enough income to pay your reasonable monthly living expenses and there is no excess money, then a payment agreement would not be applied. It is only when you have income, can pay your reasonable monthly expenses and then have money left over that an income payment agreement is applied.
Please note however, that during the bankruptcy period you are under obligation to inform the Insolvency Service of changes to your income. If you start to work (even towards the end of your 12 month bankruptcy period) a payment order could be applied if there is disposable income available at this point.
How is an Income Payment Agreement or Order calculated in Bankruptcy?
When a bankruptcy petition is raised there is a section for your income and also a section for your expenditure. Depending on your situation you may be single, part of a couple or part of a family. These factors will influence what sorts of expenses are agreeable in your bankruptcy. This income and expenditure is also influenced by other income into the household. For example if you partner works, the Insolvency Service would expect to see a contribution from the partner towards the household expenditure.
The expense figures are set by the Insolvency Service and based upon figures obtained from National Statistics in the UK. For instance, a single person in bankruptcy may be given around £300 to £400 per month for all food shopping and toiletries, whereas a family of four may be given around £600 to £700 per month. This also applies to clothing, healthcare and many other areas of expenditure.
Once the bankruptcy expenditure has been checked by the Insolvency Examiner they will at that point decide if the expenditure is agreeable based upon the amounts listed and the type of expenditure you have. If there is no disposable income there would be no payment order applied however, if there is disposable income or the Insolvency Examiner decides that certain amounts of expenditure are too high a payment order amount will be calculated. The Insolvency Service will then raise an Income Payment Agreement and send this to the person in bankruptcy. They will request that the agreement is signed and returned, and if the bankrupt agrees to this amount the income payment agreement would commence from a particular date.
What happens if I do not agree with the Income Payment Agreement amount in my bankruptcy?
If the person in bankruptcy does not agree with the amount proposed, the first thing to do would be to contact the Insolvency Examiner to query the amounts. Normally at this point the Insolvency Service will provide the person with their calculations with regards to the bankruptcy expenditure. This information is normally set out on an Income Payment Calculator-a spreadsheet which lists amounts and also the household income. The person in bankruptcy can then see exactly how the disposable income has been calculated and discuss this situation with the examiner.
In some cases the examiner will revise the payment amount based upon the discussions with the bankrupt-in other cases they will not. If the person in bankruptcy is still not satisfied in relation to the payment agreement amount the decision would be placed in front of a Judge to make the final decision on the case. This is where a income payment agreement can turn into an income payment order if the final amount is set by the Court.
It is not guaranteed that the Judge will agree with the Insolvency service-in some cases the Judgement can go in favour of the person in bankruptcy and at this point the Insolvency Service will have to accept the decision made.
If you need help with an income payment agreement in an English or Welsh bankruptcy feel free to contact our company for a confidential assessment of your current situation.
How much disposable income am I allowed in a UK Bankruptcy?
In December 2010 the Insolvency Service changed the way that they assess and deal with disposable income in bankruptcy. Prior to this date a person may have been allowed up to £100 per month disposable income without a payment agreement being applied. Since the change in December 2010 the Insolvency Service is not really allowing any disposable income to remain with the person in bankruptcy, maybe an amount of £20 at the most.
For this reason bankruptcy payment orders can now start from as little as £20 per month, with the Insolvency Service only allowing a person £10 per month for contingency/emergency expenses. There are mixed views on why this has changed. Some state that this is to benefit the creditors however, other sources cite the reason as the Insolvency service not making enough money as a government body. Bearing in mind the Insolvency service charge a fee to deal with each bankruptcy and also that there have been major staff cut backs within the Insolvency Service we feel that the change may have been made due to a mixture of these reasons.
Bankruptcy income payment agreements in overseas bankruptcy cases
When a person that resides overseas declares bankruptcy in England or Wales the case is dealt with as though it is a bankruptcy where the person lives in the UK. In many ways this is incorrect when considering income, expenditure and payment agreements. The same UK National Statistic figures are used to determine if a person should make payments to the Insolvency Service in their bankruptcy.
The main problem here is that in different Countries around the World we have different costs of living. In addition to this there are other differences such as Healthcare not being provided in many Countries and in other cases food and clothing being far more expensive than in the UK.
For instance, let’s take a scenario of living in Canada compared to living in England. In Canada there are extreme climates that people have to live and work in on a day to day basis. Temperatures may fall to -50 degrees in winter months in certain areas of Canada. To live and survive in this type of climate a person requires protective clothing and footwear that will deal with extreme conditions. This type of clothing does not come cheap and would also not be used in summer months when the person requires different protection due to less extreme temperatures.
This factor would also apply to vehicle servicing and maintenance costs. Running a vehicle in sub-zero temperatures forces a person to make sure the vehicle is in top condition mechanically and the same can be said for extremely hot temperatures experienced in the Middle East.
If we look at Countries within the United Arab Emirates such as Dubai we can see that food costs are much higher than the average prices in England or Wales and these types of differences need to be considered by the Insolvency Service when dealing with overseas bankruptcy cases.
In Switzerland it is compulsory to pay for Private Health Insurance and items such as snow tyres for your vehicle. In Australia you must have medical/healthcare insurance as you are not covered in the way that the NHS covers healthcare in the UK.
Two very interesting websites are found at www.xpatulator.com and also www.numbeo.com/cost-of-living/rankings_by_country.jsp
These websites detail costs of living in overseas Countries, and it can be seen that England ranks far lower when compared to somewhere like Switzerland or Australia in relation to general living costs.
For this and other reasons if you are considering filing for a UK bankruptcy from abroad take advice from the specialists with regards to preparation of your bankruptcy- contact us now for free and confidential advice.
Help in dealing with Income Payment Agreements and Orders in Bankruptcy
If you have declared yourself bankrupt and find yourself with an income payment agreement that you do not agree with we may be able to assist you.
If you are living in England, Wales or any overseas Country, we offer a service that reviews the payment agreement situation and advises if we feel the amount is correct. We have helped many people in the past with this type of situation and reduced payment agreement amounts.
If we feel that the payment agreement is correct we will tell you so but if we feel that you are paying too much we will details why and how to deal with this situation. Even if you can reduce the payment agreement amount by £50 per month this equates to a saving of £1800 over 36 months.