Can I spend it?

31.7.9 State benefits

April 2008

Whilst an IPA should not be sought where the bankrupt's only source of income is state benefit [note 3], the official receiver should not automatically discount the possibility of obtaining a contribution from a bankrupt who has surplus income but is also in receipt of benefit. Any calculation to identify surplus income should include all available income, including state benefits, paid to an individual for the general benefit of that individual and their family. This includes child tax credit, which is also a state benefit and comprises part of the income available to the bankrupt and his/her family, against which an IPA can be calculated. The person making the income and expenditure calculation (usually the examiner) should initially ascertain whether the bankrupt is also in receipt of non-benefit income. If this is the case, an IPA should be considered, the total income should be established (see other income sources at paragraph 31.7.7) and the bankrupt's reasonable expenses deducted (see paragraph 31.7.19) to cover his/her reasonable domestic needs. An assessment can then be made as to whether the bankrupt is in receipt of surplus income. If an IPA is to be sought, any surplus should be less than or equal to income from the source other than benefits. It should be remembered that whilst the bankrupt's total income (including state benefits) should be included in the calculation of surplus income, it is the income from sources other than the benefit(s) which is providing the payments under the IPA/IPO, which is why an IPA should only be sought to the extent of the non benefit income.

The only exception to the inclusion of state benefits in an income payments calculation is where a bankrupt is in receipt of child benefit, which is not an income based benefit (unlike child tax credit, see above). The High Court has stated as a matter of public policy that child benefit should not be included in the statement of income when applying for an IPO and there is no reason why the same principle should not be extended to cover IPAs.

Where a bankrupt’s income solely comprises state benefits, it is unlikely that a surplus will arise except where they are in receipt of non-means tested benefits, for example Disability Living Allowance. The official receiver should consider that it is always open to the bankrupt who has a surplus and wishes to contribute, to make voluntary payments. If the bankrupt was minded to contribute on a voluntary basis, having been informed that their income appeared to be sufficient to produce a surplus taking in to account their reasonable domestic needs, a voluntary agreement could be incorporated into an IPA, but it would have to be clearly noted that no enforcement action would be taken if the bankrupt failed to make agreed voluntary payments.

The Department of Work and Pensions website provides useful information regarding allowances and benefits currently in force and can be accessed at http://www.dwp.gov.uk/.

187 Certain benefit to be inalienable

(1) Subject to the provisions of this Act, every assignment of or charge on—
(a) benefit as defined in section 122 of the Contributions and Benefits Act;
(b) any income-related benefit; or
(c) child benefit,

and every agreement to assign or charge such benefit shall be void; and, on the bankruptcy of a beneficiary, such benefit shall not pass to any trustee or other person acting on behalf of his creditors.