- What is an Income Payments Order?
- An IPO is an Income Payments Order and the trustee in Bankruptcy in England & Wales may apply to court for an IPO, which requires the client to make contributions towards their bankruptcy debts from their income. Historically, the court would not make an IPO if it would leave you without enough income to meet the reasonable domestic needs of client and their family. If the client has an increase or decrease in income, the IPO can be changed. IPO payments continue for a maximum of 3 years from the date the order is made by the court and may continue after the client has been discharged from their bankruptcy.
An IPA is an Income Payments Agreement where the client enters into a written agreement with their trustee to pay an agreed amount of their income to the trustee for an agreed period, which cannot be longer than 3 years.
Historically there were no fixed guidelines on IPOs or IPAs, with each case being assessed individually.
From 1 December 2010, two main changes came into effect:
1. the minimum amount that the Official Receiver (OR) seeks to claim under an IPA or IPO reduced to £20 a month. This will substantially increase the number of bankrupts required to make a 3 year contribution to their debts
2. the bankrupt no longer retains any of the remaining surplus income once all their reasonable household expenditure is accounted for. This now follows the same guidelines as for an IVA or DMP where the Common Financial Statement (CFS) is used
Existing IPAs and IPOs will continue under the present arrangements as will any subsequent variances throughout their lifetime. - Can the rental of a street market stall from a council (long term) be classed as an asset? It's an individual souvenir stall in West End. Can it be taken from me in a bankruptcy hearing?
- This potentially could be an asset if it has any value – which may be intangible such as the goodwill attached to the pitch if it is well established. If you are considering declaring yourself bankrupt, it would be very wise to get a specialist business valuer to take a look at the terms of the lease to determine whether there is indeed value to be attributed to the lease – and also whether the lease terminates upon the making of a bankruptcy order, which is generally quite common.
- I am currently on a debt management plan but am about to be made redundant. I want to offer my creditors full and final settlements with my redundancy money. Should I get my debt management company to do this for me or make the offers to my creditors myself?
- Your debt management company should be licensed to provide debt adjustment services as well as debt counseling on a commercial basis. They should be experienced in negotiating full & final settlements with some or all of your creditors, but they are likely to charge a fee for doing this – normally a percentage of the debt reduction they achieve. For example: You still owe £5,000 on one debt and they negotiate the full & final settlement to £2,500. They would probably want a fee of approximately 10% of the reduction – in this instance £250. You would therefore pay £2,750 in total to get the debt satisfied. Creditors will generally want to know where you are obtaining the funds from. The advantage of using an experienced negotiator is that they will have extensive experience with all the major creditors, debt buyers and debt collection agencies with regard to their likely acceptance policy based upon the history of your Debt Management Plan (DMP). Offers can vary dramatically, as some the debt buyers may have only paid a few pence in the pound for your debt and to them an apparent low offer may look attractive. Conversely some of the major lenders have policies of not discounting settlement offers by more than 25% and in some instance 5% or not at all. What you pay for is their expertise and that is the consideration you need to make.
- I have a debt manager and am being charged an admin fee each month. Is this a normal procedure or should they not be charging for this?
- All fee charging Debt Management Companies charge a monthly management or administration fee of some sort. This should have been clearly explained when you set up the Debt Management Plan (DMP). There has been considerable publicity on this on 28 September covered by Debt Management Today. Several ‘not for profit’ organisations offer DMPs where there is no monthly management fee and they are funded through an alternative method called ‘fair share’ where your creditors pay the equivalent of a debt collection commission (generally 12% to 12.5% of your monthly contribution to the respective creditor), though 100% of the payment you make is taken off the outstanding balance and marked as such on the credit agreement on your credit file. Monthly administration fees can vary dramatically, but as a rule of thumb they range from a minimum of £20 to an upper ceiling of £100 per month. Some are based upon a percentage of your disposable income (the amount you pay to the Debt Manager each month), which may range from 15% to 19%. Others fees are tiered based upon the number of creditors you have for the Debt Manager to administer. The latter model is slightly more logical as it is based upon the amount of work they do – the more creditors you have the more correspondence and negotiation is required. Some providers cap the total number of payments you make and/or the total fees payable, after which all your disposable income is disbursed to your creditors. The fee structure should be in the Debt Management Agreement that you signed.
- Having read the story on bailiff activity, I thought the credit industry had taken steps forward with the debt advice sector in laying down guidance to deal with people with mental health disorders who are in debt. Do those using bailiff services not have a duty of care to treat vulnerable debtors fairly?
- It is important that the debt advice, creditor and credit services sector collaborate together to treat vulnerable people fairly where they have unmanageable debts and a mental health condition. The MALG 'Good Practice Mental Health Awareness Guidelines' and the Debt & Mental Health Evidence Form have been produced to facilitate work with those with mental health conditions and are downloadable here. It is advised that these documents are used where there are cases of individuals whose mental health condition is such that they are unable to manage their financial affairs.
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