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Asked to make an income payments agreement
After a bankruptcy order is made, 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, if possible. This means that if your income is high enough, you can be asked to make contributions towards your bankruptcy debts under an income payments agreement (IPA).
If you don't agree to this, the court could make an income payments order (IPO).
This page explains when you can be asked to make an IPA, how they're worked out and what happens if your circumstances change.
Bankruptcy explainedIf you want more information about what bankruptcy is and how it works, see Bankruptcy - what you need to know.
What is an IPA?
- is a formal, legally binding agreement between you and the bankruptcy trustee
- means you'll usually make regular monthly payments towards your debts, although you could also be asked to make a one-off lump sum payment
- normally lasts for three years, even though you will usually be discharged from bankruptcy earlier than this
- is normally a minimum of £20 per month
- doesn't require you to go to court
- can be changed if your financial circumstances change.
Will you be asked to make an IPA?
If your only income is from benefits, you won't be asked to make an IPA.
If you have any income that isn't from benefits, such as wages or maintenance, you'll only be asked to make an IPA if you're bankrupt and you have more than £20 of disposable income each month after paying for you and your family's bills and day-to-day living expenses.
If you have more than £20 of disposable income each month but don't agree to the IPA, the bankruptcy trustee can apply to the courts for an income payments order (IPO). This would mean a proportion of your salary or wages would be paid to the trustee. You'll be given at least 28 days' notice of the court hearing. You can either:
- agree to the IPO, which would mean there won't be a court hearing
- oppose the IPO, meaning you'd have to attend the court hearing and explain why you oppose it.
How an IPA or IPO is worked out
Normally, if you have more than £20 disposable income per month you'll be expected to pay it all as your IPA or IPO payment. So the more disposable income you have, the more you'll have to pay.
Your disposable income is what's left after the reasonable day-to-day living expenses for you and your family have been paid. The official receiver will always consider your views about what is 'reasonable' or necessary spending for your circumstances, but these expenses would normally include:
- your rent or mortgage payments
- heating and lighting
- TV licence
- broadband and telephone service
- household insurance
- car tax and insurance, if the trustee has allowed you to keep your car
- membership of the AA, RAC or similar, if you're allowed to keep your car
- professional membership fees that are part of your job and not paid by your employer
- prescriptions, dental treatment and opticians' fees
- payments under a maintenance order or child support agency assessment
- a reasonable monthly cost of a mobile phone
- dry cleaning.
Reasonable amounts of spending on other items may also be considered, including:
- extra-curricular activities for your children
- after-school clubs
The following spending would not generally be classed as reasonable day-to-day living expenses, although there may be situations where you can argue otherwise:
- gym membership, sports expenses or club membership, although you may be able to argue you need this for medical purposes
- pension contributions you're making to enhance a private pension
- private health insurance
- money for gambling, alcohol or cigarettes
- satellite TV, although if you have a 'combined' package with broadband and telephone service, the official receiver will look at whether this saves money overall
- excessive mortgage payments
- regular payments to charities or religious organisations.
If your circumstances change
If you're paying an IPA or IPO and your circumstances change, you should tell the trustee straight away. A change of circumstances could include:
- your income has gone up or down
- you've received a lump sum payment, for example through an inheritance
- you're having financial difficulties, such as losing your job.
The trustee will look at the change in your circumstances and decide whether your IPA or IPO needs to be changed. Depending on the change in your circumstances, the IPA or IPO could be suspended, payments could be increased or you could be asked to pay a proportion of lump sum towards it. If the trustee won't agree to change the amount, you could ask the court to order that it is changed.
'Income payments agreements and income payments orders' - from the Insolvency Service at www.gov.uk