Are bankrupts getting a raw deal?

debt_doctor

Hello everyone,
Are bankrupts getting a raw deal? Bankruptcy is the most severe of all forms of insolvency. Virtually all assets are at risk, employment or future prospects can be at risk and your bankruptcy is recorded forever on the Gazette website.
Until very recently, surplus income in BR had to be at least £100 pm spare and then they (the IS) would take 50% - 70% of the spare income for 3 years. Now they take 100% and the threshold is a measly 20quid. Go back a little further and child benefit never counted as income in an IPA, but it does now.

Why?

It is said that the IS revenues are decreasing for various reasons and that the IS has had to introduce the changes to increase revenue.
It is also said that what has changed is 'policy' and that such things as the 50% - 70% rule was policy and never defined within the Insolvency Act 1986. I agree. That is true.

However, policies are drawn up to mirror and support legislation.

Part VII of the Housing Act is a very important piece of legislation regarding homelessness and the statutory responsibility of local authorities to those eligible and in need. A 'code of guidance' was drawn up to encompass the aims and spirit of the legislation and became THE reference for all those involved. (rather like the BR technical manual)
Having worked in Housing representation in the past, the council sometimes would quote to me "yes, but it's only a code of guidance" - to which my reply was " yes, a code of guidance that was constructed to reflect the legislation, and guidance that in allmost every part has being upheld by the courts" They would almost always back down at that point.

The technical manual, I believe, was constructed to reflect the law, which again, many parts of the manual have been upheld by the courts.
To simply change the manual, is in effect changing the law without reference to the courts!

What does the legislation say? Basically, it says that no IPA/O shall be made that leaves the BR with insufficient funds for the reasonable domestic needs of the bankrupt and his or her family. - and that is what the policy was constructed for. The legislation does NOT say the reasonable domestic needs shall be determined by how skint the Insolvency Service happens to be at any particular time!

Technical manual..........

31.7.16 IPA/IPO must not reduce bankrupt’s income below that required to meet reasonable domestic needs (Boyden v Watson)
It should be noted that the official receiver should not obtain an IPA/IPO, 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] B.P.I.R. 1131, Manchester County Court, District Judge E R Jones 27 January 2004 URL="http://www.insolvency.gov.uk/freedomofinformation/technical/TechnicalManual/Ch25-36/Chapter31/part7/part1/part1notes.htm#23"][COLOR=#0066cc]note 23[/COLOR][/URL 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.

It would seem to me that the primary motive of the change of policy by the IS is to do exactly what the Distric Judge dissallowed in the case of Boyden v Watson above.

Also this contrasts greatly with the other 2 main Insolvency remedies, IVA's and DRO's. In these methods Income and expenditure is calculated by using the Commom Financial Statement. (CFS)
In the CFS a single person can have up to £300 ish for housekeeping and upto £140 pm for 'other' - which can include money for sky, gym, birthdays, leisure and going to pub! - yet in an IVA you get to protect your house (with equity) and DROs are meant for the very poorest of society.

I believe the recent changes in IPA surplus income calculations are wrong, and legally challengable.
I intend to do just that, I am looking out for one of my clients who would be dissadvantaged by the change in the rules and with their permission I'm going to represent them against the Insolvency Service at the IPA stage, and if neccessary in court at any IPO stage.

What are your thoughts on the subject?

DD

alastairq

I agree with your direction of thought.

As with, I believe, most areas of the Civil Service, incorrect decisions, intransigence, misinterpretation, or sheer box-ticking are standard CS management tools.

It really is a case of bouncing a policy downwards, knowing it is wrong, or wont work.....and waiting for the outcome to bounce back upwards again.

Thus, if a manager is prevailed upon from on high to carry out a certain course of action [even if the manager concerns knows it is wrong or wont work]....they push that action forwards.....knowing that somewhere, someone will challenge it, pushing it back upwards.

As long as it isn't an individual managers seen to be sticking their heads above the parapet and stating 'it is wrong/wont work'......then that is fine...their careers are protected...as are their bonuses.

Experts are a nuisance in the public sector.

So are stroppy gits who relish confrontation, knowing they are right.

Believe me, I know!!!!!!!!!!! [being both in my sphere of public employment]..



What was /is needed in the above case, was/is for individual BR's to challenge the IPA system......to simply NOT agree to what the IS wishes to impose...forcing the IS to resort to the Courts.....[which...much to the IS relief, takes responsibility for the outcome off and away from the IS......in public service, it's all about 'sloping shoulders'.]


We as individuals cannot advise this sort of action to a BR......it takes an element of determination on an individual's part to take on what they see as the mighty State...

But the clue lies in the terminologies...

IPA means agreement.

If you don't 'agree' then say so...let the Court decide..it wont be any worse than the alternative?

But it could be a whole lot better for the BR.

Of course, as I surmise, maybe the IS actually wants this to happen.....making the point that the action forced upon them is wrong.


A dozen IS managers saying 'this is wrong' doesn't wash.

A Court deciding it is wrong has clout...its all about evidence.

Of course, the IS policy also relies upon a compliant client base.

Ie, the IS hopes no-one kicks up a legal fuss.


A policy of...''we'll try this zero tolerance thing, that may boost income.....see if everyone accepts it lying down.''

debt_doctor

Thank you alastair, I agree with your observations. I would also say that those in my local IS office where 'hopping mad' when the 'policy' was changed late last year.

DD

MTDancer

My trustee is all about his fees!

CorBlimeyHowMuch

So how does one clarify "normal domestic needs", I did not get an IPA when I went BR in 2008 but if was in this position in 2011 I woud most certainly fight my corner as the thought of £20 per month for emergencies defies belief.

alastairq

So how does one clarify "normal domestic needs", I did not get an IPA when I went BR in 2008 but if was in this position in 2011 I woud most certainly fight my corner as the thought of £20 per month for emergencies defies belief.

Maxima for certain categories of expenditure are well documented on this forum...


but there is room for upward negotiation....providing evidence is produced to support one's argument.

If this evidence is not accepted, and one feels so disposed, simply do not agree to the IPA.

It may simply be a case of, the IS agreeing with one...'off the record', but being tied by edicts and parameters set from above....thus a Court case may well be welcomed...

I agree regarding the IPA...I had a similar situation [although I doubt I'd have had an IPA under today's constraints either]....

But consider the people who actually petition for personal BR?

Many who post on here are in such a demoralised state pre-BR, with depression, etc being commonplace.....for example..to expect these folk to then stand up for themselves and refuse to accept an IPA....seeing the alternative, especially, as 'taking one's chances in Court'....is probably unrealistic......and IS management realise this....as does the Government.


Just observe how many come on this forum asking questions about BR.....who patently know very little about the procedure they are intending to commit themselves to.


And for every newcomer considering BR, posting on here... there must be a dozen more out there rattling around in sublime ignorance?


SO the Government are relying on...''fear of authority'' and 'ignorance?'

debt_doctor

Well would you believe it!!!!

A former client of mine who went bankrupt earlier this year has just contacted me to say that he has put in his prior to early discharge SOA (which was identical to the one in his original SOA) and the IS want £xx per month, despite him originally being informed by his previous examiner "there is no way you can afford an IPA!" .....hmmm... £xx pm times 3 years plus BR deposit equals roughly the desired IS costs.

DD

Im seeing him Friday.

DD

BaldEagle

Really looking forward to seeing how this pans out, DD. Good work, sir.

haremscarem

It does seem wrong... fight fire with fire I say.

iquit

Yes we are getting a raw deal, guess they have to punish us somehow. I feel for those br under the new rules, more expensive to file and allowances much tougher than before. Sometimes it seems we'd be treated better if our 'crime' had been armed robbery with some ABH/GBH thrown in. Sorry I'm in that kind of mood . Hope you can help your client.

the_suns_is_out

I'm finding this very interesting. I have my OR interview this afternoon following my bankruptcy at the end of June and although I know I don't have any money to speak of left over that the end of the month, on paper I have a little over £20 so I am expecting some sort of IPA.

I know I messed up over-spending and incorrectly thinking I could pay it off, then the negative equity on my property has thrown the debt into silly money. I agree I should pay back what I can to my creditors who happily upped my credit limits, charges and interest month on month. However I do feel it is unfair that because the IS is being squeezed financially suddenly what has been seen as "reasonable living allowances" for years is now having to be handed over in it's entirety .

And also that bettering ourselves in work and getting payrises is now not going to benefit us at all for 3 years. That seems like a real kick in the privates.