New guidelines are changing the conditions for people who are made bankrupt. The general feeling is that these guidelines will make life a lot more difficult for bankrupts and for some people highlight IVAs as an alternative debt solution.
Comparison site Lovemoney.com recently posted an article on new proposed changes for the conditions put in place for bankrupts regarding disposable income.
Income Payment Orders and Income Payment Agreements
Bankrupts who are making payments towards their bankruptcy debts, must continue to make them, even after their discharge. These payments are known as Income Payment Orders or Income Payment Agreements. They last for three years. Previously bankrupts would be expected to pay around 50% – 70% of any disposable income they earned to their creditors as part of Income Payment Orders and Income Payment Agreements.
New Guidelines for disposable income
Lovemoney reported that new guidelines put in place by the Insolvency Service would mean that bankrupts would not get to keep any of their disposable income at all – not even an allowance for emergencies. They argued that if this guidance is put into practice, bankrupts would essentially be discouraged from working or bettering themselves, for example by going for a promotion, because they would not benefit from that extra income. We’ll try to keep an eye on this, because, in practice, in the past, the Official Receiver has not been unreasonable.
IVA as an alternative to bankruptcy
This news further adds to the advantages of an IVA as a debt solution for some people instead of bankruptcy. Unlike Bankruptcy Income Payment Agreements, IVAs contain a built in allowance for emergencies. Both IVAs and IPOs in bankruptcy include windfall clauses which cover what would happen should the debtor come into some additional money, for example an inheritance or bonus. Typically the debtor would be expected to pay all of any windfall, up to the total amount owed, and up to 50% of any salary rises or bonuses into their IVA. The government’s guideline (see link above) is not so clear when it comes to an IPO.
It’s worth having a read of our full list of IVA advantages over bankruptcy, and if you need help with your debt problems and really don’t know what to do, it’s worth completing our online contact form and one of our trained advisors will be in touch to discuss what debt solutions are suitable for you. Complete our online contact form now.