After you go bankrupt, you may still have to make a monthly payment towards your debt. This is known as an Income Payment Agreement (IPA). This guide provides specialist advice about what, if anything, you will have to pay.
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Will you get an Income Payment Agreement (IPA)?
After you go bankrupt, the Official Receiver will review your income and expenses budget.
They are looking to see whether you have any surplus income available which you can use to pay towards your debts. If you do, they will issue you with an Income Payment Agreement (IPA). This means you have to pay the amount of your surplus towards your debts each month.
If you don’t have sufficient income to meet all your reasonable living expenses, and you have no surplus (or even a negative surplus), you will not have to make any payments. In these circumstances you will not get an Income Payment Agreement.
The Official Receiver will not ask you to make an IPA payment if your income is made up entirely of benefits. This is regardless of whether you have any surplus income or not.
The difference between an IPA and IPO
Both an IPA and IPO refer to you having to make monthly payments towards your debt after you have gone bankrupt. However, they are slightly different.
Where the Official Receiver believes you have surplus income they will confirm this with you. You are then given the opportunity to query their decision if you believe it is wrong.
If you are able to come to a mutual agreement regarding your surplus income figure, you will then be issued with an IPA.
If you can’t reach agreement, the OR will apply to the Court Order to enforce the required payment. A Judge will then decide the appropriate payment you will have to make and you will be issued with an IPO.
How much will your Income Payment Agreement be?
The IPA amount you will have to pay is not dependent on the level of your income. The calculation is different for everyone.
It is based entirely on the amount of surplus income you have after all of your reasonable living expenses have been deducted.
For example. If your total income is £2000/mth and your total reasonable living expenses are £1800/mth, your surplus is £200. You can then expect to get an IPA for £200/mth.
For this reason, it is critical to get your income and expenses budget correct. Make sure you include all forms of your income and that you include everything you need to live on in your expenses budget. Remember, your expenses figures need to be reasonable and justifiable given your circumstances. Anything that seems excessive will be questioned.
Want help with your bankruptcy income and expenses budget? Speak to us about our Bankruptcy Assistance service.
How long does an Income Payment Agreement Last?
Your Income Payment Agreement will last for 3 years from the date it starts. It can be put in place at any time during the year you are bankrupt.
Your associated payments will continue after the date that your bankruptcy ends. This is because the IPA is a separate agreement to the bankruptcy itself.
The Official Receiver can’t issue you with a new IPA after you are discharged from your bankruptcy. If you did not previously get an IPA, and your income increases after your discharge, it can no longer happen. Any surplus money you earn after your discharge will be yours to keep.
If your circumstances improve during the year you are bankrupt, you must tell the Official Receiver. They can issue you with an IPA at that time if you now have a surplus income as a result of the change.
Can your IPA payments go up or down?
Your IPA payments are not fixed. Once the agreement is in place, the amount you pay can go up or down if your circumstances change.
If your income goes up (or your expenses fall) at any time during the 3 year period, you must tell the Official Receiver. They will carry out a review to see if your surplus has increased. If it has, your payments will go up accordingly.
In the same way, if your income falls, you should also tell the OR. They will arrange for your payments to be reduced or suspended altogether.
What happens to your tax code after you go bankrupt?
After you go bankrupt, HMRC will usually change your tax code to ‘NT’. When they apply the new code, tax will no longer be deducted from your wages.
This situation will remain until the end of the current tax year. When the new tax year starts, your standard tax code will be re-applied.
The Official will normally ask you to pay the extra money you receive in your wages due to the NT code over to them. They will set up a temporary Income Payment Agreement to collect the money each month. The IPA will only last until the end of the tax year. It does not last for 3 years
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