Urgent news on IPA's - Changes for BRs after 01/12/2010

Technical News item: Bankruptcy: Revision to the way in which Income Payment Agreements (IPAs) and Income Payment Orders (IPOs) are sought.

Type: Case Administration
Issuer: ORBS
To: All A2s and above

Following consideration by the Directing Board, the way in which the amount sought under an IPA or lPO has been amended. These changes should be put into effect from 1st December 2010 for all cases where a new IPA/IPO is sought. Existing IPA/lPOs will continue under the present arrangements as will any subsequent variances throughout the lifetime of all existing agreements/orders.

The changes are:

• The minimum amount that the official receiver should seek to claim under an lPA or IPO has been reduced to £20,
• The bankrupt will also no longer retain any of the remaining surplus once all their reasonable household expenditure has been accounted for.

These changes should be applied to all new IPA/lPOs agreed on or after 1st December 2010. Guidance is given below with regard to their application in respect of existing IPAs at that date.

Identifying surplus income.

When assessing the expenditure claimed as essential by the bankrupt, the official receiver should always consider each case on its own merits. A decision should be made as to whether the expenditure is realistic, relevant and appropriate to the bankrupt's circumstances and whether the amounts included are sufficient to provide for the reasonable domestic needs of the bankrupt and his/her family. The Household Expenditure Spreadsheet (HES) which provides average expenditure statistics available for various household groups, based on the most recent Office of National Statistics figures is available on the Intranet. Chapter 31 of the technical manual has also been updated to reflect the changes in approach. An updated lPA calculator will be on the intranet from 1st December.

Removal of the retention of any surplus.

As the bankrupt will no longer retain any surplus, an accurate but reasonable assessment of income and expenditure is all the more important. It is recognised that at lower levels the assessment can be at the margins. For that reason a provision of £10 per month, per dependant household member should be allowed to cover sundries and emergencies in all cases. For a married couple with 2 children, this would equate to £40 per month. There are no other changes to existing guidance in the Technical Manual as to how reasonable domestic needs should be assessed.

Maintaining a consistent approach.

Although the individual circumstances of every case will be different, the official receiver must try to maintain a consistent approach when considering the expenditure claimed by the bankrupt. During the interview a meaningful dialogue between the bankrupt and examiner must be entered into to ensure that the provisions are applied consistently and equitably.

If a bankrupt's expenditure appears to equate exactly with his/her evidenced income, leaving no surplus the expenditure should be carefully examined and tested against guidelines provided in the HES and chapter 31 of the technical manual. Particular care should also be taken where the debtor appears to have had assistance from a commercial organisation in the completion of their statement of affairs as a set of pro-forma outgoings may have been included which are not necessarily expenses actually incurred by the bankrupt on a day-to-day basis.

Where the bankrupt states that the continued payment of certain expenditure above that considered reasonable by the official receiver is required to meet the reasonable domestic needs of the bankrupt and his/her family, further information detailing the extenuating circumstances justifying why they consider this an essential expenditure should be sought. Chapter 31 of the technical manual provides further guidance on this.

Calculation of contribution to be claimed under an IPA or lPO excluding the retention of any surplus.

In all cases where the initial assessment of whether or not an lPA/lPO is appropriate takes place on or after 1st December 2010, the full amount of surplus income if above £20 should be sought by way of monthly payments under an lPA (or and lPO if an IPA cannot be agreed). This includes any cases which were initially assessed at nil but in which a further assessment is made, for example as part of the early discharge process.

Application of new minima to existing IPA/lPOs reviewed following a change in circumstances.

Except with regard to applying the lower minima (see below) the basis of any re-assessment of existing IPA/lPOs as at 1st December 2010 will be that under which it was first agreed ie the sliding scale for the retention of the surplus be retained.

If upon review the amount available falls below £50 but is above £20 that amount will be taken and the IPA amended accordingly.

If the amount of the monthly IPA payment was previously set at the minimum amount of £50, when calculating the reduced amount the bankrupt can now afford, the bankrupt should be allowed to retain the full surplus (£50) allowed originally. For example if originally the surplus was £100, they would have retained £50 and the IPA would also be £50. If at the review the surplus is now £80, the IPA should be adjusted to £30 to allow them to retain the £50 surplus originally agreed.

If the monthly amount collected prior to the IPA review was greater than £50 the existing provisions apply in that the percentage scale of the amount to be collected should be applied in the same way as when the IPA was originally calculated, using the 50-70% contribution rate. However the amount of the surplus retained by the bankrupt should not fall below £50. For example, if upon review there is a surplus of £70, an lPA or £20 should be sought and the bankrupt be allowed to retain £50.

Other matters

Amendments are being made to the ''Technical Manual'', the ''Case Help Manual'', lPA calculator and publicity material, as appropriate.