Income Payment Agreements & Orders (IPAs / IPOs)
What is an Income Payments Agreement (IPA) and Income Payments Order (IPO) in bankruptcy?
The law (section 310A of the Insolvency Act 1986) allows the Official Receiver or trustee in bankruptcy to ask you (the bankrupt) to agree to make regular payments from your income into the bankruptcy estate for a specific period of time (this is usually for 3 years).Both an Income Payments Agreement (IPA) and Income Payments Order (IPO) require you to make payments towards your bankruptcy debts from your income, if you can afford to. The Official Receiver considers your monthly household income and expenditure when deciding whether you can afford to make payments
An IPA can be agreed early in the bankruptcy proceedings as the Official Receiver can set up the agreement and start collecting payments before a trustee is appointed. The legislation provides for the IPA to be agreed between the bankrupt and the Official Receiver or between the bankrupt and the trustee.
An IPA will be made if the level of the payments can be agreed. If an agreement cannot be reached the trustee can apply to the court for an Income Payments Order (IPO).
Official Receiver guidance would suggest that an agreement will always be sought in preference to a court order.
IPA & IPO guide from gov.uk
IPA/IPO Expenditure Guideline Tables (April 2012)
The table below taken from the Insolvency Service Technical Manual provides guidance as to what may be considered an appropriate amount in order to meet the reasonable domestic needs of a bankrupt and their family.
- View the IPA/IPO Expenditure Guideline Tables
Item Single Person Couple Extra per dependant adult including children over 16 Extra per child under 16 Mortgage or rent Variable (see paragraph 31.7.82-31.7.92) Council tax Variable - Average for England £90-£130 per month Gas, electricity, other heating 83 108 25 6.50 Water 33 42 9 2 Telephone (landline only) 34 56 18 6 - Couple
9.50 - Single Person
Food, toiletries & cleaning 206 403 197 60 - Couple
89 - Single Person
Travel - Private 83 196 83 5.50 Travel - Public 28 67 28 2 Clothing & footwear 41 108 41 28.50 Maintenance payments Formal arrangements only - calculated from net income x 15% for one child, 20% for two children, 25% for three plus children Fines Court imposed fines only Other possible outgoings to be considered Single Person Couple Extra per dependant adult including children over 16 Extra per child under 16 TV licence £145.50 per year or £12 per month (TM 31.7.110) Insurance policies (except motor) Variable - In normal circumstances payments for a standard building and contents insurance policy should be allowed (TM 31.7.117) Dry cleaning Claims for essential laundry & replacement to be included (TM 31.7.116) School meals Variable - check for exemptions Afterschool clubs/trips Variable - Allowable if to cover whilst parents are working. Consider number and amount of claims (TM 31.7.94) Childcare Variable - Allowable if to cover while parents are working rather than matter of convenience (TM 31.7.95) Dentist Variable - Allowable to cover essential payments in supplement to NHS treatment (TM 31.7.122) Prescriptions Cost £7.65 per item. Pre pay certificate £29.10 for three months £104 per year (TM 31.7.121) Opticians Variable - Allowable to cover eye tests and reasonable glasses costs (TM 31.7.122) Vet bills Not allowable unless to cover reasonable domestic need - proof of expenditure required (TM 31.7.116) Pet food Not allowable unless to cover reasonable domestic need - proof of expenditure required (TM 31.7.116) Professional body membership Variable, unless paid for by employer (TM 31.7.107) Holidays (UK only) Not allowable unless to cover reasonable domestic need (TM 31.7.116) 20 40 20 10 Hairdressing & personal care Allowable to meet reasonable domestic need (TM 31.7.116) 15 30 15 5 Mobile phone Variable - Allowable if seem reasonable when considered with landline costs above (TM 31.7.92) Broadband costs Variable - Consider individual needs when assessing to allow (TM 31.7.93) Sports, entertainment, hobbies Should not be funded at the expense of creditors and should only be considered if meeting a genuine need or healthcare requirement (TM 31.7.113 and 31.7.114) 30 50 15 15 Standard emergency allowance Allowable £10 per month for bankrupt and each dependant (see paragraph 31.7.116) 10 20 10 10
Assessment of Income & Expenditure for IPAs / IPOs
When completing the online bankruptcy application all details of income and expenditure will need to be provided in the relevant sections.
The above information will be used by the Official Receiver for income and expenditure assessments in relation to potential and proposed Income Payment Agreement / Income Payment Orders.
Any proposed Income Payment Agreement / Income Payments Order will depend on deemed disposable income after 'reasonable' domestic expenses / needs are taken into account.
'Reasonable' does not mean basic and what constitutes 'reasonable domestic needs' will depend on the particular circumstances of each case.
Official Receiver Technical Manual guidance at 31.7.24 says:
"Whilst the assessment of income and expenditure with regard to obtaining an IPA/IPO is intended to provide a return to creditors where possible, it must also be remembered that the bankruptcy legislation is intended to provide the individual with an opportunity to start afresh and remain solvent in the future, so his/her expenditure should not be cut to level where he/she will have difficulty funding his/her reasonable domestic needs."
(If you are struggling to manage in a current IPA/IPO see our section on IPA/IPO Review and Variation)
It is very important that this particular aspect of the bankruptcy procedure is understood as any payment arrangement has to be reasonable and more importantly they have to be sustainable.