Part 7 Review, variation and discharge of an income payments agreement or income payments order
Section 1 Guidance applicable in IPAs (paragraphs 31.7.161 to 31.166)
Section 2 Guidance applicable in IPOs (paragraphs 31.7.167 to 31.7.171)
Section 3 Guidance applicable in both IPAs & IPOs (paragraphs 31.7.172 to 31.7.178)
31.7.161 Variation of an IPA by written agreement
An IPA may be varied by written agreement between the parties [note 1]. This can be achieved by an exchange of letters, where the official receiver confirms any reduction or increase in payments, and the date the new payments will commence. Variation of the agreement does not require the original IPA to be redrafted, and whilst it is possible to vary an existing agreement post discharge, it is not possible to enter into an IPA after the bankrupt has received his/her discharge [note 2].The amounts to be collected can be changed under the agreed variation, but the period of the agreement cannot exceed three years from the date the agreement comes into force. [note 3][note 4]. This includes where any payment holiday has been agreed (for example for the cessation of payments due to a change of circumstances for a limited period i.e. 6 months) or where for example after 6 months of paying contributions under an agreement the bankrupt’s circumstances change, such that he/she can make a significant increase in his/her contribution. In these circumstances the existing agreement should be varied, the official receiver should not ask the bankrupt to enter a new agreement for the increased amount.
Where an existing IPA agreed before 1 December 2010 is in force (i.e. signed by all parties) and is subsequently reviewed following a change of circumstances, it may be that the (former) bankrupt can no longer afford to make a contribution at the payment level set under the original agreement, but could make a payment from surplus income which is less than the pre 1 December 2010 minimum collection amount of £50 per month. Where this occurs, and the bankrupt can afford to make a payment of at least £20 per month (the minimum collection amount as from 1 December 2010) from his/her surplus income, the lesser amount he/she can afford should be accepted and the IPA amended accordingly.
a)Existing IPA in force before 1 December 2010, payment set at £50 minima
(amended May 2011)
If the amount of the monthly IPA payment was previously set at £50, when calculating the reduced amount the (former) bankrupt can now afford, he/she should be allowed to retain the £50 allowance in full from their surplus income. This has the effect that the decrease is applied to the amount to be collected under the IPA, not the amount left with the (former) bankrupt to meet his/her reasonable domestic needs. An example of this is as follows:
b)Existing IPA in force before 1 December 2010, monthly payment greater than £50 minima
(amended April 2012)
If the amount of the monthly IPA payment was previously greater than the £50 minima, where on review the bankrupt’s surplus income has declined but he/she still has sufficient surplus to pay an amount greater than £50, the percentage scale of the amount to be collected should be applied in the same way as when the IPA was originally calculated, using the 50 -70% contribution rate. The percentage scale income payments calculator for pre 1 December 2010 agreements which are in force, is available on the Technical Section (Income Payments Calculators and Household Expenditure) intranet page, and can be used to assist with the re-calculation. An example of this is as follows :
In the event that one of the parties to an IPA wishes to vary it but the other party does not consent to the variation, application may be made to court for the IPA to be varied. Such an application may be made by the bankrupt, trustee or official receiver.
Any application to court to vary the IPA does not have to be made before the discharge from bankruptcy, but it may assist in recovering arrears if any variation is progressed as soon as possible (see Parts 8 and 9 of this chapter for further information on enforcing an IPA or IPO following default). Variation of the agreement only modifies the IPA, any court order made as a result of an application to vary the agreement would incorporate the terms of the varied agreement, it does not convert it into an IPO. If the official receiver wishes to apply to court for an IPO, he/she should be aware that an IPO can only be made on the application of the trustee, filed at court before the bankrupt receives his/her discharge [note 5]. For further information on applying for an IPO please see Part 6 of this chapter.
The application to court to vary an IPA must be accompanied by a copy of the original agreement (form IPA) [note 6]. The court may order a variation of the IPA under section 310A in Form 6.81 [note 7].
Where the bankrupt (or former bankrupt) is applying to the court to have the terms of the IPA varied under section 310A(6)(b), he/she must send a copy of the application and notice of the venue to the official receiver or trustee (as appropriate) at least 28 days before the date fixed for the hearing. In the same way, where the official receiver or trustee is applying to the court to have the terms of the IPA varied under section 310A(6)(b), he/she must send a copy of the application and notice of the venue to the bankrupt at least 28 days before the date fixed for the hearing.
An IPO can only be varied, reviewed or discharged by order of the court and only the trustee or the bankrupt can apply to the court to have the terms of the order varied or discharged [note 8] . Generally the application will be made by the official receiver.
Where the bankrupt or trustee is applying to have the terms of the IPO varied or discharged, he/she must file at court with his/her application a short statement, setting out the grounds on which the application is made [note 9][note 10].
The court may dismiss the application to vary the IPO, if it considers "no sufficient cause is shown for the application". Before the court can dismiss the application the applicant must be given an opportunity to attend a court hearing, of which he/she must be given at least 5 (business) days notice (for all cases where the petition was presented on or after 6 April 2010) 7 days notice (for all cases where the petition was presented before 6 April 2010) [note 11]. If the application is not dismissed the court will fix a venue for it to be heard.
If the trustee considers it is appropriate to do so, he/she may attend the court hearing to be heard on the application. Irrespective of his/her decision to attend the hearing, he/she may file a report at court setting out any matters to be drawn to the court's attention, such report must be filed not less than 7 days before the date fixed for the hearing. A copy of any report filed must be sent to the bankrupt [note 12].
(amended June 2014)
If, as a result of the hearing the income payments order is varied, the official receiver, as trustee, should send a sealed copy of the order to the bankrupt and the payor, if other than the bankrupt [note 13]. Where the Insolvency Service collection agents have been instructed (currently Clarke Willmott), a copy of the order should be uploaded via Debt View paragraph 31.7.144 so that they can act on the terms of the new order or close their file [note 14].
(updated October 2013)
The early discharge provisions were introduced by EA2002, and mean that in cases where the order was made on or after 1 April 2004, the official receiver may cause the 12 month period of discharge to be reduced by filing notice 6.82 at court stating that the investigation of the conduct and affairs of the bankrupt is unnecessary or concluded. These provisions were repealed in the Enterprise and Regulatory Reform Act 2013 (see Chapter 22 Part 2) and early discharge may no longer be applied for in cases where the bankruptcy order was made on or after 1 October 2013.
This process can only be started 3 months after the report to creditors is issued. Where at the review stage form IPOQ reveals a change in circumstances whereby the bankrupt now appears to have surplus income from which to make a contribution, the official receiver may still consider setting up an IPA. The time constraint for setting up an IPA must be remembered, as the IPA cannot be implemented once the bankrupt has been discharged (see paragraph 31.7.9). The IPA must be agreed before the official receiver takes any further action regarding early discharge. Case Help Manual part Income payments agreements provides full details as to the practical application of the early discharge procedure following the bankrupt's submission of an accepted IPOQ. If it has not been possible to agree an IPA, the official receiver when trustee (or an insolvency practitioner appointed as trustee) may consider applying for an IPO, but in order for the IPO to be valid the application must be instituted before the bankrupt receives his/her discharge from bankruptcy.
(updated October 2013)
In some circumstances it may not be necessary for the official receiver to review the bankrupt's income when deciding whether a case is suitable for early discharge. If the bankrupt's only source of income is disability benefit or a state pension for example, and the situation is likely to remain unchanged, there is no point in carrying out the review procedure and the official receiver may, in such cases, pursue early discharge without doing so.
Early discharge does not apply to bankruptcy orders made on or after 1 October 2013.
Technical Manual Chapter 22 - Discharge
The most likely circumstances where it will be necessary to apply to the court for the IPA/IPO to be varied are:
ii. Where the bankrupt who is subject to an IPA/IPO is in receipt of a lump sum payment such as a pension lump sum (either before or after discharge) which can be held to be within the definition of income and can be recovered under an IPA/IPO see paragraph 31.7.52 and Annexes B and C.
The bankrupt's monthly income may change as a result of receiving his/her pension (as opposed to remaining in employment) and the official receiver/trustee should consider this when seeking to vary the amount to be claimed under the IPA/ IPO. To ensure that creditors receive the full anticipated amount under the original agreement or order it may be necessary to adjust the bankrupt's payments , which could include making a one-off payment from the lump sum to cover the amount still outstanding within the term of the original IPA/IPO and then vary to nil the amount of contribution for the months remaining within the original term of the IPA/IPO. Whilst the payment terms under the IPA/IPO may be varied, it is not possible for any varied payments to extend beyond the three year term of the original agreement or order.
If a bonus is paid to the (former) bankrupt whilst an IPA is in force, the IPA may be varied to claim the bonus, including where the bonus became due before but is received after discharge.
For further guidance on claiming pension or lump sum income see Part 2 of this chapter, in particular paragraph 31.7.52. Also see Annex B and Annex C attached to this chapter, which include example calculations on the assessment of real disposable income in circumstances where the official receiver seeks to claim a lump sum payment via an IPA/IPO.
31.7.176 28 day notice period required of IPA/IPO variation hearing date
The person applying to court for the IPA/IPO to be varied (the applicant) must send to the official receiver or trustee, or to the bankrupt (whichever is not the applicant), a copy of the application and notice of the venue, at least 28 days before the date fixed for the hearing [note 15][note 16][note 17].
Where the official receiver (whether or not as trustee) is the applicant he/she can use form IPORAV to send a copy of the application and form IPANVA to give notice of the venue.
Where an insolvency practitioner has been appointed trustee, and variation of an IPA or IPO is required due to the bankrupt's default in making payments or
similar, the official receiver should decline to deal with any application to the court to vary the agreement or order if requested by the insolvency practitioner trustee, as such applications form part of the trustee functions.
31.7.178 Notice where variation requires third party payments under the IPA/IPO
(Amended July 2012)
Where the court orders that the IPA/IPO be varied so that it takes the form of an agreement that a third party is to make the payments under the IPA/IPO to the trustee or official receiver, the trustee or official receiver must then send notice of the agreement to the third party [note 18][note 19][note 14]. When making any such payment, the third party may deduct the appropriate fee towards the clerical and administrative costs of complying with the IPA but must notify the bankrupt in writing of the amount deducted[note 20][note 21]. Currently the appropriate fee is 50 pence [note 22].