After you’ve been declared bankrupt, the Official Receiver (OR) will decide whether you can afford to make payments to your creditors from your disposable income. If they find that this is the case, you’ll be asked to set up an Income Payments Agreement (IPA). If you don’t agree to the IPA, the court may make an Income Payments Order (IPO) against you instead.
What’s the difference?
The key difference between an IPA and an IPO is how the payments are made. Both arrangements are legally-binding and will form part of the restrictions placed on you by your bankruptcy. However, an IPA is effectively voluntary and you’ll simply be told to make payments to the OR or the Trustee supervising your bankruptcy. You won’t need to go to court for it to be set up.
On the other hand, an IPO is enforced by the court and involves money being taken directly from your wage or salary packet and then passed to the OR or Trustee. If the court wants to make an IPA against you, you’ll get 28 days’ notice of a court hearing to discuss the IPO. You then have a choice: accept the IPO and avoid going to court, or explain your reasons for opposing the IPO in court.
How do IPAs and IPOs work?
In most cases, you’ll be asked to make regular monthly payments to your creditors, usually for three years from the date your Bankruptcy Order is made. These payments will continue even if your bankruptcy is discharged before the three years are up.
Sometimes, you may be asked to make a lump sum payment instead of a monthly amount. This might happen if you come into money during your bankruptcy term, such as receiving an inheritance, redundancy payment or lottery win.
How is the amount of an IPA or IPO calculated?
The OR will work out the amount of your IPA or IPO based on your disposable income. This is the amount of money that’s left over each month when you’ve paid your essential living expenses, such as rent, food and fuel. You may also be allowed to keep back a certain amount of income for selected non-essentials such as clothes, pets and holidays.
If the OR considers that your disposable income is £20 or more, you’ll probably be asked to set up an IPA. The more money you have to spare, the higher your IPA will be.
It’s important to note that your idea of ‘essential living expenses’ may not be the same as the OR’s! For example, the OR is unlikely to agree to exclude outgoings like tobacco, alcohol and satellite TV subscriptions from your disposable income. You should also note if your only income is from state benefits, the OR won’t ask you to set up an IPA.
What happens if my financial situation changes?
It will be a condition of your Bankruptcy Order that you tell the OR straightaway if there are any changes in your financial circumstances during the IPA or IPO. These include an increase or decrease in your income, a significant change in your outgoings, receiving a lump sum payment, or if you’re simply struggling to make ends meet under the current arrangement.
The OR will consider whether the changes in your situation mean that the IPA or IPO should also change. They might decide to suspend the arrangement to give you some breathing space, or increase the amount of your monthly payments.
If you’ve received a lump sum, they might ask you to make a one-off payment to your creditors. If this is enough to clear your remaining debts and cover the OR’s fees, then your IPA or IPO will be cancelled and your bankruptcy will be discharged early.
Note that if you ask the OR to change the amount of your IPA or IPO and they refuse, you can challenge this decision in court.
Find out more
Please contact Bankruptcy Clinic for more information on IPAs and IPOs, or any other aspect of bankruptcy. Our trained advisers are here to answer your questions and help you find the right solution to your debt problems.
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- Calling 0808 168 7389 – it’s free from a landline
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- Completing our simple online enquiry form