What happens if my income changes while bankrupt?

Published: 10th January 2012
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We look at the implications if your income changes while you are bankrupt.
If you have declared yourself bankrupt the official receiver will have reviewed your income and expenditure to establish whether you have a surplus income which should be paid towards your creditors.
If you can afford to make a monthly payment your will have been asked to do so in the form of an income payment agreement (IPA).
If you cannot afford to make payments you will not have been asked to do so.
Either way, if your income changes for the better or for the worse, the bankruptcy procedures require you to tell the official receiver so a decision can be made about what to do.

What happens if your income increases in bankruptcy?

If your income increases during your bankruptcy the official receiver will decide whether or not the payments you are making to your creditors should increase.
If you already have a bankruptcy income payment order your money payment will simply be increased if required.
If you are not already paying a bankruptcy income order payment, the official receiver may then require that you start.
It is important to understand that an IPA lasts for three years from the day that it starts. As such, even if you are eleven months through your bankruptcy, if an IPA begins this will last for a further three years even though you may be discharged after month twelve.
In addition, if your income improves while your IPA is still running you may still be required to increase your monthly payments even though you have already been discharged from your bankruptcy.

What if your income reduces in bankruptcy?

If your income reduces while you are bankrupt, you should inform the official receiver straight away.
If you are not currently paying anything towards your creditors then this situation will not change.
However if you do already have an income payment agreement, the official receiver may decide that the amount you pay should be reduced or even stopped all together. 
If the payments you have been making are stopped, it is still likely that the payment order will remain in place albeit at a zero rate for the full three year term. As such if your income increases again within that period you may have to start paying once again.

Overtime and bonus payments in bankruptcy

Generally speaking, overtime and bonus payments will not be used in the calculation of your standard monthly income unless these are guaranteed or extremely regular.
However, if you do receive a bonus during your bankruptcy you will be required to inform the official receiver so that they can decide what to do with the extra money.
Under the bankruptcy procedures the payment you receive will be treated as a windfall and as such is liable to be paid in full to the OR to be used in the repayment of your creditors.
After you are discharged from your bankruptcy, further windfalls you receive are yours to keep.

Income reviewed before bankruptcy discharge

If you have not been given an income payment agreement then before you are discharged from your bankruptcy it is likely that the official receiver will request a review of your income and living expenditure.
This is so that the official receiver can confirm whether any changes have recently been made to your income.
If your income has increased and you can now afford to start making monthly repayments, the official receiver will want to implement an IPA before you are discharged.
If an income payment agreement is issued this will last for a further three years.

Bankruptcy has a relatively short payment period

Once you have declared yourself bankrupt it is important to understand that you will be asked to make a payment towards your debt if you can afford to do so.
However the payments you make will last for a considerable shorter period compared to the length of time you would have to pay using the alternative debt solutions such as an individual voluntary arrangement or debt management plan.
As such even though making an income payment when you are bankrupt is not particularly welcome, this should not be used as a primary reason to reject bankruptcy as the solution to use to resolve your debt problem.

James Falla is a debt management solutions expert and author. He has fourteen years of experience of helping people with the process of declaring themselves bankrupt.

In 2004 James co founded Thomas Charles a specialist debt management solutions company where he personally helped hundreds of clients in declaring yourself bankrupt. James is now the managing director of and senior debt advisor for Wilmott Turner Financial Services which operates debt solution websites such as http://www.beatmydebt.com/.

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