Income payment orders/agreements (ipo/ipa)

Both an IPO (income payments order) and IPA (income payments agreement) require the bankrupt to make contributions towards the bankruptcy debts from his income, if he can afford to. In deciding whether the bankrupt can afford to make payments, consideration is taken of the monthly household income and expenditure.  Where the bankrupt appears to have income in excess of what he requires to pay for the reasonable domestic needs of himself and his family, i.e. "real disposable income", the official receiver will seek agreement to an IPA or, if the bankrupt does not agree, application is made to court for an IPO.   Such contributions would continue for three years. Further, if the bankrupt has any increase or decrease in income, the IPO/IPA can be reviewed and varied.  The court will not make an IPO if it would mean that the income of the bankrupt (after taking into account the payments under the IPO) would be insufficient to meet the reasonable domestic needs of the bankrupt and his family. 

An IPA/IPO will not be sought if this would leave the bankrupt without enough money to cover the reasonable domestic needs (the day-to-day living expenses) of the bankrupt and the bankrupt’s family.  ‘Family’ includes everyone living with and dependent upon the bankrupt. This means children, and any adults who don't have an income. The trustee in bankruptcy or the court assesses 'reasonable domestic needs' by examining all the circumstances of the individual case. There is no fixed amount for an IPA or IPO and each case will depend on individual circumstances. 

An IPO/IPA will only be sought where the bankrupt can make a minimum payment of £50 per month.  In cases where the payment would be below this amount it is deemed the cost of collecting would be more than the collection.   

NB An IPO or IPA would not be sought where the bankrupt’s only or main source of income is state benefit payments. Income includes all payments the bankrupt gets, including income from self-employment, PAYE employment, benefits (excluding child benefit), working tax credit, child tax credit and any payments under a pension scheme.

The High Court has stated as a matter of public policy that child benefit should not be included in the statement of income when applying for an IPO.

As well as normal monthly expenses, which include rent or mortgage payments (which are reasonable for the area the bankrupt lives in and the size of the family), food, heating and lighting, clothing etc below are some examples of things that can also be treated as part of a bankrupt’s domestic needs: 

TV licence, TV and video hire - one set per household 

Household insurance 

Car tax and insurance (if the trustee decides a car is 'exempt property' and allows the bankrupt to keep it)

AA/RAC or similar membership 

Membership of a professional body, needed for the bankrupt’s job (unless the employer pays for this)

Prescriptions/dental treatment/opticians 

Payment under a maintenance order or Child Support Agency assessment

Mobile phone (a reasonable monthly cost)

Dry cleaning

This is not meant to be a complete list, and other expenses could be considered.

The following are examples of what is not generally treated as allowable expenses (unless there are special circumstances): 
Gym membership, any sports expenses or club membership

Additional pension contributions to enhance a pension 

Private healthcare insurance

Money for gambling, alcohol or cigarettes 

Satellite TV 

Broadband internet costs (unless shown to be necessary for paid employment or education)

Excessive mortgage payments

Note: the official receiver will always consider a bankrupt’s views about what is 'reasonable' or necessary spending for their circumstances.

Again, the list is not meant to be complete. 

A bankrupt is asked to provide details of a partner's income, as it is assumed that a partner will contribute to the household expenses. Details of payments from any other member of the household who contributes to household expenses are also needed.  If the bankrupt is not willing to provide this information, he/she will not be able to claim the full amount of all household expenses.

Currently the guidance given to official receivers about how much money they should take under an IPA/IPO is that if a bankrupt has more than £100 per month disposable income he/she will be expected to pay a percentage of that under an income payments agreement for three years.  If he/she has less than £100 per month disposable income he/she will not be expected to pay anything under an income payments agreement.  The percentages work on a sliding scale, according to the amount of disposable income, as follows:

£100 to £240 - 50%

£250 to £340 - 60%

£350 to £490 - 66%

£500 to £600 - 70% 

Differences

How long will an IPO/IPA last?

Both IPOs and IPAs run for three years (36 payments). 

The bankrupt must be undischarged at the time the Order is made or the Agreement signed. 

What happens if they stop paying? 

The OR or trustee could apply to court for the suspension of the bankrupt’s discharge and can apply for an attachment of earnings order (most people making payments under an IPA/IPO are employees). 

Obtaining IPAs/IPOs

The Statement of Affairs and the PIQB ask for details of income and normal monthly expenses, such as rent, food, heating and lighting, and clothing. The bankrupt is asked to provide proof of income and spending, such as payslips, utility bills, rent books etc.  

The official receiver or the trustee in bankruptcy assesses the monthly spending to decide whether, in that person’s circumstances, the payments are reasonable. They will deduct the reasonable domestic expenses from the income to find the 'real disposable income'. This is the money that is left over every month after the payment of all necessary expenses.  Normally between 50% and 70% of the real disposable income every month would be taken for the IPA or IPO. Generally, the more real disposable income the bankrupt has, the greater the percentage of it will be used for the payments.  

The OR must send the bankrupt a copy of the agreement, so even if he agrees to the IPA at interview, the official receiver still needs to give/send them a copy and allow the 14-day cooling off period.  

The 14 days is not statutory, but follows good practice in consumer credit agreements.  It prevents any allegation that the bankrupt may have been pressured into the agreement. 

The bankrupt must sign and return the agreement, or notify the official receiver that he does not wish to be bound by it (in which case the official receiver proceeds with an IPO).   

The IPA becomes enforceable when the official receiver signs it. A copy is then sent to the bankrupt. 

For more information see our leaflet ‘IPO / IPA (Income Payment Agreements and Income Payment Orders)’ which can be found on our website at www.insolvency.gov.uk in ‘Publications’.