Guidance on making an income and expenditure assessment

December 2010  

Part 2 Guidance on making an income and expenditure assessment 

31.7.19 Identifying surplus income - initial stages

When completing the statement of affairs or,  in creditor petition cases the Bankruptcy Preliminary Information Questionnaire (form PIQB),  the bankrupt should answer any questions regarding income and outgoings, providing full details of monthly income he/she receives (from all sources) and usual monthly expenditure. This may include accommodation, food, housekeeping, utilities, travel costs, clothing,  etc. and other regular outgoings. See Part 4 for further information as to a consistent approach when considering whether expenditure claimed by the bankrupt is reasonable.


31.7.20 Information sources used to identify income and expenditure

In the case of a debtor's petition, at the preliminary enquiry stage the bankrupt's income and expenditure figures will be available from the statement of affairs to assist the examiner in deciding whether an IPA/IPO may be appropriate.  Where,  following an examination of the statement of affairs an IPA/IPO is to be considered,  guidance on the correct interview procedure to take can be found at Chapter 4 Part 2. Where completed,  bankrupts should be asked to return the PIQB prior to any interview, and in all cases information provided regarding income and expenditure should be supported with evidence such as pay slips and utility bills.


31.7.21 Examination of the PIQB to establish surplus income

Examination of the PIQB will allow the examiner to consider whether the bankrupt is likely to have sufficient surplus income to make payments under an IPA/IPO and to note any unusual or excessive items of expenditure requiring further explanation by the bankrupt at interview. It may be that the information provided in the statement of affairs or via the PIQB is sufficient for the official receiver to ascertain that there is little likelihood of an IPA/IPO.  For example, the information may show that the bankrupt's sole source of income is derived from state benefits or the bankrupt has insufficient surplus income from which to make any contribution.

Where the official receiver believes the bankrupt may have income in excess of that required to pay for his/her reasonable domestic needs and those of his/her dependants, an IPA/IPO should be considered based on the surplus income available.


31.7.22 Assessing expenditure on a consistent basis, taking in to account reasonable domestic needs

The official receiver/trustee must try to maintain a consistent approach when considering the expenditure claimed by the bankrupt, but all individual circumstances will be different.  The official receiver must ensure that the amount of the expenditure items allowed in any IPA/IPO calculation are sufficient to ensure the reasonable domestic needs of the bankrupt and his/her family are met.  

Each case must be considered on its merits, but to maintain consistency it will be necessary for the examiner to discuss with the bankrupt the expenditure information he/she has provided, to ensure that he/she has accounted for all his/her reasonable domestic needs and those of his/her family. Case law (such as Re Rayatt [1998] B.P.I.R. 495 and Scott v Davis [2003]BPIR 1009, see paragraph 31.7.18) emphasises that reasonable domestic need is to be determined by reference to the circumstances of each case, which could include in some circumstances provision for dependant children to continue their private education,  where it can be shown that it might be detrimental to the children to move them to a different school.  See Part 1 Section 3 for further information on reasonable domestic needs.


31.7.23 Ensuring expenditure claimed is sufficient to meet reasonable domestic needs

It may be necessary when examining the figures provided by the bankrupt to consider other areas of expenditure which the bankrupt may not have included, but which are necessary for meeting their reasonable domestic needs. Some bankrupts may find it difficult to assess the outgoings of themselves/and or their family where the expenditure is sporadic rather than monthly, or prior to bankruptcy they have not been in a position to meet their reasonable domestic needs as a result of other pressing debt repayments.  In these circumstances it may be necessary for the official receiver/trustee to refer to average expenditure figures (such as those provided in the Household Expenditure Survey (HES)  see also paragraph 31.7.26) in order to calculate the realistic outgoings required to meet the reasonable domestic needs of the bankrupt and his/her family. It is important to remember that it is the reasonable domestic needs of the bankrupt and his/her family that need to be considered, [Note 1] not just their basic domestic needs [Note 2]. See also Part 1 Section 3 of this chapter regarding reasonable domestic need and Part 4 of this chapter regarding expenditure.


31.7.24 “Fresh start” not to be compromised by level of IPA/IPO contribution

Whilst the assessment of income and expenditure with regard to obtaining an IPA/IPO is intended to provide a return to the creditors where possible, it must also be remembered that the bankruptcy legislation is intended to provide the individual with an opportunity to start afresh and remain solvent in the future, so his/her expenditure should not be cut to a level where he/she will have difficulty funding his/her reasonable domestic needs .


31.7.25 Previous debt repayment to be analysed

An analysis of previous debt repayments may indicate whether outgoings claimed by the bankrupt as necessary expenditure post bankruptcy are consistent with pre-bankruptcy payments.   The official receiver should take into consideration whether,  prior to bankruptcy,  the bankrupt has been making payments from his/her income or using credit facilities, and whether debts which the bankrupt has been attempting to service prior to bankruptcy are now included as unsecured creditors in the bankruptcy proceedings.


31.7.26 Expenditure - maintaining a consistent approach (amended April 2012)

If a bankrupt's expenditure appears to equate exactly with his/her evidenced income, leaving no surplus income, expenditure should be carefully examined and tested against guidelines provided.  Annex D and the HES (available on the Technical Section intranet page) provides guidance regarding the average monthly expenditure of different households across the UK,  based on information extracted from the Family Expenditure Survey, updated annually by the Office of National Statistics (ONS).

The information contained within the HES provides comparison figures for households of various combinations of adults and children, and can assist the official receiver/trustee in deciding whether the outgoings recorded by the bankrupt for him/herself and family are reasonable when compared with the known averages for similar households. See also guidance on expenditure at Part 4 and within guidance issued by ORBS at Annex D.  For cases where a new income payments calculation is being undertaken after 1 December 2010 the income payments calculator available on the Technical Section intranet site also provides assistance in calculating any surplus income available to the bankrupt, sufficient to allow him/her to make regular payments under an IPA/IPO.

Particular care should be taken where the debtor appears to have had assistance from a commercial organisation in the completion of their statement of affairs. The figures in the calculation may not be based upon information provided by the bankrupt but rather designed to ensure that the bankrupt is not considered to be eligible for an IPA/IPO.


31.7.27 Calculation of contribution to be claimed under a new IPA/IPO assessed on or after 1 December 2010

(updated October 2013)

Following an assessment of the real disposable income (the income remaining after all expenditure necessary to finance the reasonable domestic needs of the bankrupt and his/her family has been taken into account,  see paragraph 31.7.23), where an assessment for a new IPA is made on or after 1 December 2010 (regardless of the date of the bankruptcy order) and the bankrupt has surplus income of £20 or more,  the full amount of this surplus income should be sought by way of monthly payments under an IPA (or an IPO if an IPA cannot be agreed).  As the official receiver is seeking to recover the full amount of the surplus income, it is essential to ensure that each individual’s circumstances are carefully examined and all available information has been taken into account with regard to the individual's income and expenditure.  Reference should be made to the guidance figures available in the HES which provides average expenditure figures for various household combinations and also Part 3  regarding income to be considered and Part 4 regarding expenditure to be considered. 

Where an IPA is already in force and is to be reviewed following a change of circumstances or as part of an early discharge review,  see  Part 7 of this chapter.  (Early discharge does not apply to those cases where the bankruptcy order is made on or after 1 October 2013 - see Chapter 22 Part 2).


31.7.28 Obtaining an IPA where IP trustee appointment pending

In cases where the bankrupt has sufficient assets in addition to an IPA which may warrant the appointment of an insolvency practitioner at a meeting of creditors, the official receiver should continue with the necessary procedure to ensure the IPA agreement comes into force at the earliest opportunity and should not neglect to secure the payments under the IPA pending the appointment of an insolvency practitioner.


31.7.29 Contested IPA

Where a bankrupt contests that he/she is unable to make payments of the amount sought by the official receiver, he/she should be questioned as to why this is the case, the amount having been calculated from information provided by the bankrupt, and the reasonable domestic needs of the bankrupt and his/her family having been considered when assessing income and expenditure.

The bankrupt may dispute that he/she has surplus income from which to make a payment, and the official receiver/trustee may suggest to the bankrupt the areas in which any disputed expenditure is considered unreasonable or excessive.  This may occur particularly in situations such as where the official receiver has disallowed part of the mortgage repayments claimed by the bankrupt (see paragraphs 31.7.84 to 31.7.91 for further information on dealing with excessive mortgage repayments).


31.7.30 Consent to an IPA to be pursued in preference to applying for an IPO

Where the official receiver remains satisfied that on the evidence provided by the bankrupt he/she has surplus income, the bankrupt's consent to an IPA should be pursued in the first instance rather than making application to court for an IPO.

If a bankrupt refuses to accept that he/she has sufficient surplus income and/or will not agree to a reduction or exclusion of expenditure considered unreasonable by the official receiver, it is likely he/she will refuse to agree to an IPA.  Where the official receiver remains convinced that the bankrupt has sufficient surplus to make a contribution towards repaying his/her creditors, as trustee he/she should consider pursuing these repayments by making an application to court for an IPO.  See also Part 6 on applying to court for an IPO, Part 7 on reviewing and varying an IPA/IPO, and Part 8 and Part 9 on enforcing an IPA/IPO.


31.7.31 IPO application where IPA cannot be agreed must be instituted before discharge

The application for an IPO must  be instituted (i.e. lodged at court) before the bankrupt is discharged and can only be made by the trustee.  Where the bankrupt disputes his/her payments (see paragraphs 31.7.29 and 31.7.30) the trustee should continue with the (disputed) IPO application and rely on the court to adjudicate on any disputed matters when deciding whether the bankrupt should be subject to an IPO.


[Back to Part 1 Introduction to income payments agreements (IPAs) and income payments orders (IPOs)] [On to Part 3 Income to be considered in an income payments calculation]