Bankruptcy Income Payment Agreement
After you go Bankrupt you may be asked to make a payment towards your debt each month. This is called an Income Payment Agreement (IPA). It will be made up of 100% of the surplus income you have after your reasonable living expenses are paid for.
You may have read that if you are Bankrupt you will only be asked to pay a small percentage of any surplus income you have towards your debts. Prior to the Dec 2010 this was the case. However the rules have changed. The OR is now obliged to ask you to pay all of the surplus income you have.
Will you get an Income Payment Agreement?
If you go Bankrupt in England & Wales the Official Receiver will carefully review your income and living expenses. They will request you provide recent wages slips and bank statements to confirm the figures. They will then calculate your surplus income by deducting your reasonable living expenses from your income.
You will be required to pay any surplus income you have towards your debts each month. For this reason it is vitally important that when completing your application forms you complete the living expenses section correctly.
BE Tip: If your income is made up solely of benefits then you will not receive an IPA. In addition if you live in Northern Ireland the rules about paying surplus income towards your debts are less strict. If you have a surplus it is unlikely that an IPA will be issued against you unless the amount is very large.
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How long does an Income Payment Agreement last?
If you receive an IPA it will last for 3 years from the date it is issued. This means that it is likely to remain in place after you are automatically discharged from your Bankruptcy.
BE Tip: While your IPA is in force (even after you are discharged) you are legally bound to inform the Official Receiver if your circumstances change. As a result your payments can go up or down.
Can an IPA be issued after you are Discharged?
You can only be issued with an Income Payment Agreement while you are bankrupt. If the Official Receiver has not issued you with one by the date of your discharge then it can no longer happen.
However an IPA can be issued at any time while you are bankrupt. If you are not asked to make payment initially but then your income increases the agreement can be issued at this date.
BE Tip: If you have only a short while to go before the end of your Bankruptcy and you do not currently have an IPA it may be worth delaying any change to your employment until after your are discharged. An increase in your income before you are discharged could result in an IPA being issued which will then last for a further three years.
What is an Income Payment Order?
If you accept the OR’s review of your income and expenditure budgets and agree to start making the required payment this is called an Income Payment Agreement. If you do not accept you can ask the OR to reconsider. However if you cannot reach an amicable agreement they will ask the Court to intervene.
At a hearing the Court will decide what level of monthly payment is reasonable. If they agree with the OR you will then be issued with a Court Order forcing you to make the payments. This is called an income Payment Order (IPO). This can be enforced with further Court action if required.
An IPA is an income payment request from the Official Receiver (OR) that you agree to voluntarily. An IPO is an income payment that is ordered by the Court.
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