Published in Debt Advice Features on Friday, March 30 2007

When you are declared bankrupt and the bankruptcy order has been made against you, the Official Receiver will send you a questionnaire, which you will have to complete and return to him or her normally within 7 days. The questionnaire will contain forms for you to complete, one of these forms is an income and expenditure sheet, this will outline what you spend on day to day living expenses. If after you have covered your essential living costs you have money left over (disposable income) then the Official Receiver will ask you to make contributions into in an Income Payments Agreement.

Bankruptcy law allows your bankruptcy trustee to ask you to make contributions out of your disposable income, the total amount that you pay will form part of your bankruptcy estate along with any property or other assets of significant value. You would make the payments for a specific timescale (normally 36 months)

These payments you make in bankruptcy is known as an Income Payments Agreement (IPA), as already mentioned the payments will come out of any surplus money you have left after you have covered your monthly living expenses

An IPA is a voluntary contribution that you make yourself, although it is a written and formal binding agreement between you and the bankruptcy trustee, you do not have to accept the agreement or the request of the Official Receiver and would not be made to sign any forms if you feel you cannot meet the request of the bankruptcy trustee.

The IPA is flexible in as much as if your circumstances changed you could ask for the a review of your financial position to see if the IPA terms can be altered.

If you do not agree or co-operate with the trustee then her or she has the power to apply to the court for your bankruptcy discharge to be delayed or suspended while the matter is resolved.

If you agree to the request then you would commence payments normally 1 month after you have signed the IPA document, if your circumstances do change you can still ask for modifications to the agreement at a later date.

Entering into an IPA does not delay or suspend your bankruptcy discharge, you would still be discharged automatically 12 months after your bankruptcy order was made, what this means is that you would still be making payments for a further 2 years or so.

It is always best that if on paper it shows that you can make contributions then you should do so, one benefit to an IPA in bankruptcy as oppose to other debt solutions is that the bankruptcy trustee would only ask you to contribute around 50% of your surplus income.

An IPA is a binding agreement once you have signed and agreed to the terms, what this means is if you do keep up with the payments then the trustee in bankruptcy could apply for an attachment of earnings and take other legal proceedings to recover the outstanding money.

If you do not sign the agreement or agree to it and the matter does not get resolved then the trustee will apply to the court for an Income Payments Order. (IPO)

Remember an IPA is more beneficial to you if you can on paper make the contributions, if the trustee gets a court order then it can be very difficult and expensive to renegotiate the terms of the order.