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Debtdummy
Junior Member
United Kingdom
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 Posted - 23 March 2007 : 17:15:40
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Part 1 - IPAs INTRODUCTION
December 2006
31.7.2 Introduction to the IPA
Provision is made by section 310A [note 1] for the trustee or the official receiver and the bankrupt to enter into a written agreement that the bankrupt, or a third party on behalf of the bankrupt, will make regular payments of a specified amount or proportion of the bankrupt’s income into the estate for a specified period. An Income Payments Agreement (IPA) is a binding agreement, the terms of which are enforceable as though it were an Income Payments Order (IPO).
The agreement must specify the period during which it is to have effect , which may end after the date of discharge, but which may not exceed a period of three years, beginning with the date on which the agreement was made. [note 2]
An IPA can be agreed early on in the proceedings as the official receiver can set up the agreement where appropriate even before he/she is trustee, the legislation providing that the IPA can be agreed between the bankrupt and the trustee or between the bankrupt and the official receiver.
An IPA can only be entered into prior to the discharge of the bankrupt [note 3] and only comes in to force when the official receiver or trustee signs it [note 4]. This means that in order to ensure the IPA is valid, the agreement must be signed by the trustee or official receiver prior to discharge. The bankrupt can be allowed up to 14 days (or longer, if specified by the official receiver) to sign and return the agreement [note 5] and the policy of the Service is to allow a 14 day "cooling off" period after the bankrupt has signed the agreement (see paragraph 31.7.42). The official receiver should sign and date the agreement at the earliest opportunity, as soon as the relevant time period has elapsed, in order to validate the IPA [note 6]. It is especially important to allow enough time for the IPA to be validated where an application is to be made for early discharge (see paragraph 31.7. 39).
31.7.3 Income
Section 310(7) [note 7] widely defines the income of the bankrupt for income payment order purposes as:-
"..every payment in the nature of income which is from time to time made to him or to which he from time to time becomes entitled, including any payment in respect of the carrying on of any business or in respect of any office or employment..".
This definition also applies to income of the bankrupt when considering an income payments agreement. [note 8]
Despite the provisions of the Welfare Reform and Pensions Act 1999, payments received by the bankrupt under a pension scheme whilst he/she remains undischarged from bankruptcy, should be included in any IPA calculation (see Chapter 61, Pension Schemes, paragraph 61.10).
The exceptions to this are:
a) payments by way of guaranteed minimum pension, that is any pension provided by an occupational pension scheme in accordance with the requirements of the Pension Schemes Act 1993 [note 9]; and
b) payments giving effect to the bankrupt’s protected rights as a member of a pension scheme.
For more information regarding occupational pension schemes, guaranteed minimum pensions and protected rights see Chapter 61, Pension Schemes, paragraphs 61.3 and 61.26 – 61.31.
31.7.4 Reasonable domestic needs
In assessing the amount the bankrupt is able to pay under an income payments agreement, the official receiver or trustee must make allowance for the "reasonable domestic needs" of the bankrupt and his/her family in the same way as would be considered for an income payments order [note 10]
The bankrupt’s family are persons who are living with him/her and who are dependent on him/her. [note 11]
The assessment of "reasonable domestic needs" will be based on an examination of all the circumstances of the individual case. For example it is possible that a bankrupt who has a low income may still be capable of contributing to an IPA if his/her living costs are low because he/she lives with relatives at an advantageous rate or pays a low rent. However, it should be noted that the official receiver should not obtain an IPA the effect of which would be to reduce the bankrupt’s remaining income below the amount needed to meet his/her "reasonable domestic needs".
The official receiver or trustee must ensure that an agreement with the bankrupt to make regular repayment from his/her income is only entered in to where the bankrupt can afford to do so. In the case of Boyden v Watson [2004] BPIR 1131, Manchester County Court, District Judge E R Jones 27 January 2004 [note 12] the trustee made application to the court for an IPO following a failed attempt by the trustee to set up a voluntary payments agreement with the bankrupt (this was prior to the enactment of the EA2002 IPA provisions). The court stated that the only issues which required consideration were the amount the bankrupt could afford to pay and for what period. The trustee's application was dismissed because the court held (having tested the bankrupt's explanation as to the reasonableness of his monthly expenditure) that it was not possible to make an IPO as this would have the effect of reducing the income of the bankrupt to below the amount necessary to meet his reasonable domestic needs, and that to make a nominal order for the period of three years would be of no benefit to the creditors. The court commented further that the trustee's application was misleading in that, rather than seeking to obtain an IPO in order to fulfil his duty to realize and distribute the bankrupt's estate, the trustee was primarily motivated in making the application by a wish to guarantee payment of his fees.
When considering whether the bankrupt can afford an IPA the official receiver must undertake an objective assessment of the information supplied by the bankrupt relating to income and expenditure, in the same way as is required by the court in relation to an income payments order (refer to cases of Rayatt and Scott at paragraph 31.7.55).
As a guideline as to what may be considered permissible when deciding what constitutes reasonable expenditure, refer to Part 2, especially paragraphs 31.7.19 and 31.7.24 A useful source of information showing average monthly expenditure for a variety of domestic groups is produced annually by the Office for National Statistics (web site link available on Technical Section intranet site). The Family Expenditure Survey on the Technical Section intranet site provides information taken from this website in the format of a table which allows easy comparison with the information as provided by the Statement of Affairs or Preliminary Information Questionnaire (PIQB) completed by the bankrupt.
31.7.5 Period of the agreement
The agreement must be made prior to the bankrupt's discharge [note 13]. The IPA may end after the discharge of the bankrupt but may not end after the period of 3 years beginning with the date on which the agreement was made [note 14] (see also paragraph 31.7.2) . Variation of the agreement can be made after discharge [note 15] (see paragraph 31.7.52) but cannot extend any repayment agreement beyond a period of 3 years beginning with the date on which the agreement commenced. The period for which the IPA is to run must be specified in the agreement signed by the bankrupt and the trustee or official receiver.
[Back to Introduction] [on to Part 2]
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IPAs INTRODUCTION-PART 1
