My income and bankruptcy
If you live in the United Kingdom and are struggling with debt, you may be considering bankruptcy as a way to get a fresh start. One of the requirements of bankruptcy is that you agree to make an income payment agreement (IPA). An IPA is an arrangement between you and your creditors whereby you agree to make regular payments out of your income towards your debts. The payments are usually made over a period of three years, and at the end of that period, any remaining debts are written off.
The person in charge of your bankruptcy (a trustee) can claim a portion of your income beyond your reasonable needs to pay towards debt.
Any time in the first 12 months following your bankruptcy, before you’re discharged.
Usually monthly – but you could also have an option to pay a one-off lump sum.
The goal is to determine how much of your disposable income can be used for debt repayments. So, to work out the IPA, they essentially need to calculate what you have left after all expenses are accounted for.
Anything necessary or reasonable.
The bankruptcy trustee
An Income Payment Agreement can last up to three years.
If you can’t afford an IPA, you won’t be entitled to one. Given the minimum payment is only £20 per month, nearly everyone qualifies for an IPA
The person dealing with your bankruptcy. Usually a licensed Insolvency Practitioner (IP).
Expenses that are considered necessary in an IPA calculation
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Rent
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Mortgage
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Utilities
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TV license
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(Mobile) Phone and internet
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Essential car costs
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Essential memberships
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Health and medication costs
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Payments towards child support and maintenance
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Utilities
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TV license
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Phone and internet
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Dry cleaning
Expenses that can be allowed – if only a reasonable amount is spent on them
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Clothes
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Holiday
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Grooming
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Child-related costs
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Cost of keeping pets
Expenses not acceptable in an IPA
These are expenses that you can keep, if you want, but won’t reduce your IPA repayments because are not considered necessary or reasonable.
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Gym and leisure memberships
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Alcohol
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Smoking
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Gambling
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Pension
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Private healthcare
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Satellite TV
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Excessive mortgage payments
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Charity
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Payments to religious organisations
Yes, you can. For example, you can argue that gym is essential because you have a high blood pressure and going to the gym keeps it at a safe level.
IPA and a change in my circumstances
The bankruptcy trustee
Anything that concerns your financial situation.
The amount you pay back monthly could increase or you may be asked to pay a lump sum to settle debt.
You may be allowed to take a payment break, reduce the monthly payments or the entire IPA could be stopped / suspended.
You can provide evidence to prove the change. If you can’t you can go directly to the Court and ask them to take relevant action.
You are already declared bankrupt and as it’s the last resort in finance difficulty your debts are written off. The purpose of an IPA is to try and pay anything you may be able to. If you can’t, nobody can do anything further.
An IPO works exactly like an IPA, except that it is enforced by the Court rather than your bankruptcy trustee.
Only if your pension scheme is classed as ‘not approved’. Most pensions are approved, and they are not counted towards bankruptcy.
Breakdown of pension – what is and isn’t counted towards bankruptcy
Whether your pension count towards your bankruptcy or not is based on a variety of factors.
If you are are receiving an income or will do within four years of becoming bankrupt, these funds do count towards your debt payments during bankruptcy.
All pensions are counted, provided they meet the above criteria, except state pensions and benefits.