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| Debtdummy |
Posted - 23 March 2007 : 17:32:30
Part 4 - IPAs DEFAULT
December 2006
31.7.48 Default in payment of IPA
In the same way as an IPO, an IPA is enforceable like a judgment. Where the IPA is being collected by agents, and the bankrupt has missed one payment, the collection agents employed by The Service, Clarke Willmott, will issue the first reminder letter. In the event that the bankrupt still fails to make payment at the next due date, Clarke Willmott will issue the second reminder letter. If the bankrupt still fails to make payment, Clarke Willmott will notify the relevant RTLU/official receiver for them to make a decision as to the next course of action. See also paragraph 31.7.49 regarding consent to payment at source from employer, where the bankrupt has missed two consecutive payments under the IPA. If the bankrupt notifies the collection agents that he/she has temporary financial difficulties and the agents are satisfied that there is a reasonable expectation that the arrears can be recovered within a short period, the collection agents have discretion to agree revised terms under which missed payments can be collected, without reference to the appropriate RTLU/official receiver. Whilst any revised terms for repayment of the arrears may continue beyond the date of discharge, they cannot extend beyond the period of three years from the date the IPA originally came in to force. [note 1]
Where the situation cannot be resolved by the agents in this way or if the problem is more permanent, such as loss of employment, a permanent reduction in the bankrupt's income or permanent increase in expenditure, the agents will report the situation to the RTLU.
If the RTLU is satisfied that an IPA is no longer appropriate, because of the loss of a job or a substantial drop in income, the RTLU will inform the bankrupt that payments will be suspended until the situation improves, with a reminder that the bankrupt must notify the RTLU if things improve before the term of the IPA expires. Where the bankrupt has provided a full explanation throughout, and subsequently informs the RTLU/official receiver that he/she is again in a position to make payments under the IPA, they will recommence payments from that point and no attempt will be made to collect the missed payments, although the RTLU/official receiver may need to consider varying the amount to be paid under the agreement if the bankrupt's circumstances have improved.
If the circumstances of the bankrupt do not improve during the period the IPA is in force and no further payments are received before the expiry of the IPA (which can be no later than three years from the date the IPA came in to force), the IPA will be treated by the RTLU as having lapsed and no further action taken.
Where a reasonable evidenced response is received indicating that a reduced IPA is appropriate, the IPA agreement can be amended by mutual agreement between the bankrupt and the official receiver or trustee and then reduced payments will be accepted by the RTLU.
If there is no response from the bankrupt or the explanation provided is not acceptable, the RTLU will prepare an application to court to vary the agreement so that the bankrupt's employer makes the payments under the IPA and liaise with the originating office for a court date. The local official receiver will be requested to attend at court for this variation hearing but it will be for the RTLU to prepare and serve all necessary paperwork (see paragraph 31.7.52 concerning variation of the IPA).
Where it is not possible to deal with a default in payment by means of direct payment from a third party/employer (see paragraph 31.7.49) and payments under the IPA have lapsed without any explanation, the RTLU/official receiver should ask the bankrupt to complete a further income payments questionnaire (form IPOQ).
If the IPOQ is returned and shows the bankrupt is still able to make payments from his/her income and there is no valid reason why the contributions have ceased, the official receiver/trustee should seek to vary the agreement (either by written agreement with the bankrupt or by application to court - see paragraph 31.7.52), to recover the arrears outstanding . To do this it will be necessary to calculate the total amount to be collected under the original IPA and deduct the amount of any payments already made. Once this outstanding amount has been established, the required monthly contribution needed from the bankrupt to repay this outstanding amount can be calculated, bearing in mind that any variation of the IPA cannot extend beyond the period of three years from the date the IPA originally came in to force. [note 2]
If the bankrupt is not in a position to make high enough repayments for each of the remaining months (up to three years from the commencement of the IPA) to meet his/her total outstanding obligation under the existing agreement, then the IPA repayments should be varied to the maximum monthly amount that he/she can afford (making sure this still allows the bankrupt sufficient monies to cover his/her reasonable domestic needs and those of his/her family). If the bankrupt can provide valid evidence that his/her total liability under the original IPA should now be reduced, the total amount to be collected under the IPA can be varied to reflect that and the repayment amounts calculated against the revised total.
Alternatively, where the IPOQ indicates that the bankrupt's circumstances have now altered sufficiently to allow him/her to repay an amount above that required to meet his/her outstanding total obligation under the originally agreed IPA, then the IPA can be varied to reflect the increased total amount to be collected (within the three year period of the original IPA), and the bankrupt's monthly payments can be varied to the higher amount to meet this increased total for the remaining period of the original three year agreement. The calculation of the bankrupt's contribution must always take in to consideration the reasonable domestic needs of the bankrupt and his/her family.
If a shortfall against the originally agreed total to be collected under the IPA (or a shortfall against the revised total if applicable) still remains at the end of the three year period of the agreement, the debt outstanding is still enforceable against the (former) bankrupt due to his/her having signed the original agreement. The trustee can apply to court for a judgment against the (former) bankrupt for any outstanding arrears remaining at that date under the (expired) IPA and then apply to court for an attachment of earnings order to recover the judgment debt from the former bankrupt. [note 3]
31.7.49 Consent to payment at source from employer
Section 310A(1)(b) [note 4] specifically allows for an IPA (or in the case of an IPO s310(3)(b) [note 5]) to provide for payment of income received by the bankrupt to be made directly from a third person to the official receiver/ trustee.
Where an IPA is in arrears the official receiver/trustee can apply to court to vary the IPA to seek payment from a third party [note 6]. Following discussions with the collection agents employed by The Service (Clarke Willmott) form IPA now includes the bankrupt's agreement that if they default from making payments on two consecutive occasions, Clarke Willmott may contact their employer to arrange for payments to be deducted from their salary and paid directly to Clarke Willmott. This provision within an IPA is enforceable in the same way as if it were a provision within an IPO [note 7]. This means that it will not be necessary to apply for variation of the agreement where payment is sought from an employer as the bankrupt has already agreed this procedure in the original agreement. If the official receiver/trustee seeks to obtain payment from a third party other than an employer, it will still be necessary to apply for the agreement to be varied. Whilst repayment of the monthly amount agreed in the IPA can be paid directly from the employer, it should be remembered that collection of accrued payment arrears cannot extend beyond three years from the date the IPA originally came in to force. [note 8] (See also paragraph 31.7.48)
(See also paragraph 31.7.44 regarding the possibility of obtaining an IPO where the IPO application is instituted before the date of discharge).
31.7.50 Suspension of discharge following IPA payment default
Suspension of discharge, whilst still an option available [note 9] [note10] will only be considered in the most extreme cases. Where the IPA is in arrears and the official receiver/trustee is concerned the matter cannot be resolved before discharge by variation of the agreement or payments being made directly by an employer/third party (see paragraph 31.7. 49) he/she retains the option to apply for an IPO provided that the application for an IPO is initiated or commenced before discharge (see paragraph 31.7.44).
31.7.51 Action following default post discharge
A bankrupt who has received his/her discharge from bankruptcy, still has a duty to attend upon the official receiver/trustee and/or provide information concerning his/her affairs when reasonably required to do so by the official receiver/trustee. [note 11] [note 12] [note13] [note 14] Where a bankrupt defaults from making payments after receiving their discharge from bankruptcy, the court has continuing power [note 15] to review agreements/orders made. An IPA is legally enforceable in the same way as an IPO and the court can review it in the same way, both before and after discharge (see also this chapter Part 5, Variation of Income Payments Agreement)
[Back to Part 3] [ On to Part 5]
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