Changes to Bankruptcy Policy Mean More People Will Have to Pay After Declaring Themselves Bankrupt

From the 1st of December 2010 the policy surrounding the amount a bankrupt person is required to pay towards their Credit7s was changed. We consider how this change will affect people who are declaring themselves bankrupt.

If you declare yourself bankrupt, the official receiver will review your income and living expenditure budgets. Any money left over once all of your essential and reasonable living expenses are paid is called disposable income.

Before the 1st of December 2010, if your disposable income was anything up to ?100, you would have been allowed to keep this money.

If your disposable income was over ?100 you would have been required to pay up to 70% of this towards your Credit7 for a period of three years in the form of an income payment agreement (IPA).

These policies have now changed. From the 1st of December 2010, if your disposable income is above ?20, you will be required to pay all of this towards your creditors for a three year period.

Why change?

One of the reasons for the change is possibly to bring the bankruptcy payment policy more in line with the requirement for an individual voluntary arrangement (IVA).

If you carry out an IVA, you will be expected to pay all of your disposable income towards your Credit7s. To allow someone to declare themselves bankrupt and keep up to ?100 of their disposable income could therefore have been regarded as unfair.

However even after the changes, if you are asked to pay an income payment agreement after declaring bankruptcy, this will only last for three years compared to five years of payments in an IVA.

The other view is that, the courts simply need to collect more money towards the administration of bankruptcies. In the wake of the Government's cuts, my feeling is that this is not far from the truth.

Bankrupt before December

One of the questions raised by the change in policy is what happens if you were bankrupt before December 2010?

If you were declared bankruptcy before 1st Dec and currently have an income payment agreement in place this will continue as normal. If during the three year period, your circumstances change, the amount you pay will still be reassessed based on the old policy

However, if you were bankrupt before December 1st and are not yet subject to an income payment agreement, if you circumstances improve, the new criteria will be used and you are far more likely to get an IPA.

One concern about this is that it is likely to deter people who are already bankrupt from trying to improve their Credit0 situation.

This is a fair argument. However in reality this will only affect a relatively small number of people and the government is more concerned about the potentially huge number of people who are likely to declare themselves bankrupt in the coming months and years.

Not an easy option

Although the recent changes will put more onus on people who have declared bankruptcy to repay some of their Credit7, bankruptcy must still be seen as sensible solution for many people.

Credit9 is written off after twelve months and if you cannot afford to pay anything towards the money you owe, you will not have to.

However, bankruptcy should never be seen as an easy option and expert advice should always be sought before deciding to go down the bankruptcy route.

From the 1st of December 2010 the policy surrounding the amount a bankrupt person is required to pay towards their Credit7s was changed. We consider how this change will affect people who are declaring themselves bankrupt.

If you declare yourself bankrupt, the official receiver will review your income and living expenditure budgets. Any money left over once all of your essential and reasonable living expenses are paid is called disposable income.

Before the 1st of December 2010, if your disposable income was anything up to ?100, you would have been allowed to keep this money.

If your disposable income was over ?100 you would have been required to pay up to 70% of this towards your Credit7 for a period of three years in the form of an income payment agreement (IPA).

These policies have now changed. From the 1st of December 2010, if your disposable income is above ?20, you will be required to pay all of this towards your creditors for a three year period.

Why change?

One of the reasons for the change is possibly to bring the bankruptcy payment policy more in line with the requirement for an individual voluntary arrangement (IVA).

If you carry out an IVA, you will be expected to pay all of your disposable income towards your Credit7s. To allow someone to declare themselves bankrupt and keep up to ?100 of their disposable income could therefore have been regarded as unfair.

However even after the changes, if you are asked to pay an income payment agreement after declaring bankruptcy, this will only last for three years compared to five years of payments in an IVA.

The other view is that, the courts simply need to collect more money towards the administration of bankruptcies. In the wake of the Government's cuts, my feeling is that this is not far from the truth.

Bankrupt before December

One of the questions raised by the change in policy is what happens if you were bankrupt before December 2010?

If you were declared bankruptcy before 1st Dec and currently have an income payment agreement in place this will continue as normal. If during the three year period, your circumstances change, the amount you pay will still be reassessed based on the old policy

However, if you were bankrupt before December 1st and are not yet subject to an income payment agreement, if you circumstances improve, the new criteria will be used and you are far more likely to get an IPA.

One concern about this is that it is likely to deter people who are already bankrupt from trying to improve their Credit0 situation.

This is a fair argument. However in reality this will only affect a relatively small number of people and the government is more concerned about the potentially huge number of people who are likely to declare themselves bankrupt in the coming months and years.

Not an easy option

Although the recent changes will put more onus on people who have declared bankruptcy to repay some of their Credit7, bankruptcy must still be seen as sensible solution for many people.

Credit9 is written off after twelve months and if you cannot afford to pay anything towards the money you owe, you will not have to.

However, bankruptcy should never be seen as an easy option and expert advice should always be sought before deciding to go down the bankruptcy route.