The Law relating to bankruptcy and how any surplus income is addressed
Bankruptcy Income Payment Orders - Bankruptcy Income Payment Agreements
The relevant Sections of The Insolvency Act 1986 concerning the treatment of surplus income in a bankruptcy are Sections 310 and 310A and Rules 6.189 to 6.193C of The Insolvency Rules 1986. The gist of the law is as follows:
- While it is the Official Receiver (OR) or the Trustee in bankruptcy who assesses whether an Income Payments Order ought to be made then in the case of any dispute the final decision rests with the Court. In other words the OR's view of what is the appropriate level of monthly payment can be contested in Court.
- The Court will not make an Income Payments Order which would reduce the bankrupt's income below what was necessary to meet the bankrupt's reasonable domestic needs. In other words your monthly rent or mortgage payment, costs of food, repairs, housekeeping costs are all normally justifiable expenses.
- If your financial circmstances change during the bankruptcy period (for better or worse) the level of the Income Payments Order will also change (up or down).
- Theis Section is similar to the previous Section but this time addresses the situation where the level of monthly payment required is agreed with the OR. In this case a Court order is not required as the bankrupt enters into an Income Payments Agreement.
The period for which payments have to be paid to the OR (One year or three years or nothing at all?)
- The maximum period that an Income Payments Order or Income Payments Agreement can be made for is three years.
- Rule 6.193A however provides that an Income Payments Agreement can only be entered into before the bankrupt's discharge from bankruptcy. As most bankrupts obtain their discharge automatically after one year the effect of this Rule is that "If you are not caught for an Income Payments Agreement (IPA) in year one of the bankruptcy the OR cannot come back to you later to try to get money out of you under an IPA".
- This then begs the question as to whether or not the OR can apply for an Income Payments Order for the first time after the bankrupt has been discharged. The good news is that Section 310 (1) (A) (b) provides that an Income Payments Order can only be applied for before the bankrupt is discharged.
- This means that if you are not caught under an Income Payments Agreement or an Income Payments Order in the year following the making of the bankruptcy order you will never have to pay a penny out of your income to the OR. (Provided that you obtain "automatic discharge" after one year)
As Licenced Insolvency Practitioners we give advice on Bankruptcy Surplus Income & Income Payment Agreements & Income Payment Orders