Income Payments Agreement: What Bankrupts Must Pay from Earnings
If you’re considering bankruptcy, or are already in the process, you’ve probably heard of an Income Payments Agreement (IPA). This is a legally-binding agreement between a bankrupt person and their bankruptcy trustee, essentially setting out how much of the bankrupt person’s income will be used to repay their creditors. In this article, we’ll explore what an IPA is, how it’s calculated, and what you need to do if you have one.
What is an Income Payments Agreement?
An Income Payments Agreement (IPA) is an arrangement made between a bankrupt person and their trustee. It’s designed to help pay off the bankrupt person’s debts. If you’re declared bankrupt and you have excess income after covering your reasonable living costs, you may be asked to contribute towards your debts through an IPA.
An IPA lasts for three years from the date it’s agreed, even if the bankruptcy order ends before then. If you fail to keep up with payments, your trustee may apply for an Income Payments Order (IPO), which is a court order forcing you to make payments.
How is an IPA Calculated?
The calculation of an IPA depends on your disposable income – the money you have left after covering your basic living costs. These costs include things like rent or mortgage, utility bills, food, and transport costs. You also have allowances for clothing, personal grooming, and reasonable leisure activities.
Your trustee will calculate your disposable income by subtracting your total living expenses from your total income. The amount left is what you may be expected to pay towards your IPA. Remember, an IPA is not intended to leave you with nothing – it’s designed to ensure that you contribute towards your debts without going without vital necessities.
What Happens if You Can’t Pay an IPA?
If your circumstances change and you can’t afford your IPA payments, it’s crucial to inform your trustee immediately. They can review your income and expenses and might adjust your payments. If you don’t inform them and miss payments, they could apply for an Income Payments Order (IPO) through the court. An IPO can extend beyond the duration of your bankruptcy and may involve additional legal costs.
Practical Tips for Dealing with an IPA
It’s important to provide accurate and honest information about your income and living costs when an IPA is being calculated. Underestimating your costs could leave you with an IPA you can’t afford. It’s also crucial to keep your trustee updated on any changes in your circumstances.
Frequently Asked Questions
What is an Income Payments Agreement?
An Income Payments Agreement (IPA) is a legally-binding agreement between a bankrupt person and their trustee. It determines how much of the bankrupt person’s income will be used to repay their creditors.
How long does an IPA last?
An IPA lasts for three years from the date it’s agreed, even if the bankruptcy order ends before then.
How is an IPA calculated?
An IPA is calculated based on your disposable income, which is the money you have left after covering all your basic living costs.
What if I can’t afford to pay my IPA?
If you can’t afford to pay your IPA, you should inform your trustee immediately. They can review your situation and potentially adjust your payments.
What happens if I miss IPA payments?
If you miss IPA payments and do not inform your trustee about changes in your financial circumstances, they may apply for an Income Payments Order (IPO) through the court. This could extend beyond the duration of your bankruptcy and involve additional legal costs.
Conclusion
Understanding your financial obligations when dealing with bankruptcy is crucial. An Income Payments Agreement can be a significant part of this process if you have sufficient income. Staying informed and communicating with your trustee can help ensure that your IPA is manageable and does not add to your financial stress. Remember, bankruptcy is designed to help you manage your debts, not to push you further into financial difficulty.