What is an income payments order?
An Income Payment Order (IPO) or Income Payment Agreement (IPA) can be issued when your payments to creditors have been reduced following a bankruptcy order.
In cases where the bankrupt has surplus income as a result of this, the trustee or official receiver will arrange for ongoing contributions to creditors to be made when you can afford. This process normally lasts three years from the date of the bankruptcy order, but this can differ from case to case.
With an IPA the official receiver or trustee is entitled to ask you for regular payments from surplus income, towards the bankruptcy estate, for a specific amount of time. This cannot leave you unable to meet everyday living costs, and is a voluntary agreement, but binding; non-compliance can result in court orders and suspension of discharge from bankruptcy.
In cases where no agreement can be settled on an IPA, an IPO is necessary. This is a court order obtained by the trustee, and can either require payments directly from you or your employer. Failure to meet the requirements therein will result in suspension of discharge and additional legal action.
An IPA or IPO cannot leave you incapable of covering domestic costs for you and any dependents including children and adults without an income. As every case is unique, the trustee or court will assess the reasonable needs of your household individually. These include:
- Household insurance
- Car tax, breakdown coverage and insurance
- Membership to professional bodies essential to your income
- Medical costs including dental and optical
- Mobile phone to a reasonable monthly tariff
- Dry cleaning
- TV licence and rental including videos
Reasonable expenses can differ, and the official receiver will take into account personal circumstances when making any judgement.
To prove your reasonable costs you will be asked for a statement of affairs detailing income and expenditure if you filed for bankruptcy, including pay slips, invoices and bills or your preliminary information questionnaire, PIQB, if someone else made you bankrupt.
Both should contain comprehensive information on rent, food, heating, lighting, clothing and other normal monthly outgoings. In most cases, any disposable income will be tied up in an IPA or IPO following bankruptcy.
Within income, all payments you receive from self and PAYE employment, salary, benefits including those for children, working tax credits, and pension payments will be included. If your income increases or you receive a lump sum then in both instances you must contact the trustee immediately. For wage increases a form may be required to detail the new salary and current spending, and any IPA or IPO may be amended as a result.
In the event of a lump sum, it’s likely you will be required to make a one off payment as a result, which will vary depending on what point you are up to in any arrangement, and whether you have been discharged from bankruptcy.
In most cases HMRC will apply a nil tax code, meaning your employer will be instructed not to take any more income tax from you. They will not be informed of the reason behind this, and this does not mean you are exempt from tax, this will be payable later. Surplus money resulting from this can form part of an IPA or IPO.