Hello and welcome back for the next blog on insolvency topics from Purnells.
This week's blog will be focusing on one of the main issues for many of those who have been made bankrupt, how their income and expenditure is viewed by their Trustee.
Firstly, once you have been made bankrupt, you attend an interview with your local Official Receiver. Prior to this interview you will have completed a form that details your current/future monthly personal income and expenditure.
That statement forms the basis of whether or not you will have to pay over to your bankruptcy trustee the "surplus income" under a Bankruptcy Income Payments Order or under a Bankruptcy Income Payments Undertaking.
The reason "surplus income" must be paid to your Trustee is that it is seen as an asset and must therefore be realised for the bankruptcy estate.
An important note to bear in mind, when completing that statement, is that you will not be paying such things as unsecured loans, credit cards etc after the bankruptcy order has been made - You must not therefore include those monthly payments on the expenditure summary. The only expenses that should be deducted from your income are your day to day living costs. These will include utilities, car insurance, mortgage/rent, food etc.
Following the making of a bankruptcy order you will be required to produce, periodically, income and expenditure accounts on the same basis as previously produced. Again, the purpose of this account is to determine whether your income or expenditure has changed and whether or not you have any surplus income at the time of the updated statement.
If you do have "surplus income" then the Trustee in bankruptcy will discuss with you an appropriate sum to be paid monthly into the bankruptcy. This amount is payable for a period of three years (36 monthly payments).
If you and the Trustee agree on the monthly sum to be paid then you will enter what is called an Income Payments Agreement. If the parties disagree on the amount to be paid then the Trustee will apply to court for an Income Payments Order. The Bankrupt will then be compelled by the Court to make the level of payments, which the court determines are reasonable.
The best way to visualise how a Trustee would calculate the level of payments would be by way of a Case Study:
Tony is married to Sharon, they own their own home and both are employed on a PAYE basis.
Jointly their total take home pay is £2,000 per month.
Tony petitioned for his own bankruptcy following a failed business venture that he entered into with a friend of his.
The monthly expenses of both Tony and Sharon amount to £1,600 excluding the unsecured debts of Tony which are now not paid due to the bankruptcy.
The question in this scenario is whether Tony can be requested by the Official Receiver to pay the sum of £400 (£2,000 minus £1,600) per month under an income payments order or agreement?
The Trustee in Bankruptcy will no doubt attempt to claim the £400. This is not necessarily the answer and will depend on the respective earnings of Tony and Sharon.
To calculate the figure for which an Income Payments Order will be pursued we would argue that the surplus of £400 should be apportioned rateably to Tony and Sharon's net income, if their joint expenses cannot be rateably apportioned in the first place.
For instance; if Tony's net income was £1,000 per month and Sharon's net income was also £1,000 per month then we would argue that the Trustee could only request an Income Payments Agreement of £200 per month (that sum represents Tony's "share" of the overall surplus family income post bankruptcy of £400).
The actual calculation of each parties share of the surplus is likely to be more involved than this and we are always willing to assist in these matters. We can also act on your behalf to negotiate with your Trustee if you so wish, for a low fee.
As always, Should you wish to discuss Income and Expenditure in a bankruptcy or any other insolvency matter in more detail, please do not hesitate to get in contact. Telephone: 01326 340 579, Email: email@example.com