The Enterprise Act, brought in a few years ago, reduced the period of bankruptcy from three years to one, more often than not less than that. Quid pro quo, the Official Receiver was given the ability to essentially force bankrupts to pay surplus income into the bankruptcy for three years. The Insolvency Service’s own figures show that so few of the old Income Payments Orders were completed that the system had, to all intents and purposes, broken down. The new IPA system followed since the introduction of the Enterprise Act is based on similar processes as had failed dismally under the old rules, and anecdotal evidence suggests that it too is failing.
In March 2006, the Insolvency Service issued a report which said that less than one in four IPOs were completed successfully. In addition, in 40% of cases, less than 25% of the due payments were actually paid. Put another way, if this were a car production line, only one in every four cars would come off the end of the line complete, just less than half would come off as the chassis only, and the rest would sit somewhere inbetween!
So, why did it happen and why is this still seems to be happening? The Insolvency Service is silent on this point. Critics are increasing saying that bankruptcy really is a soft touch nowadays, the DTI’s earlier claims that it would not be, are unfounded.
The problems could lie in the Official Receivers’ own systems, their training of staff, their huge workloads, or the figures they use to calculate the free income. I suspect it is a combination.
Let’s look at where the OR gets his figures from for what a ’bankrupt’s reasonable domestic needs’ cost. The figures come from the Office of National Statistics own production ‘the Family Expenditure Survey’. The FES is an annual appraisal of what it costs to live in the UK today. About 6,500 of us are tested (out of 60+ million!) and there are few checks to ensure the figures the people provide are sensible. I may not be a mathematician, but I cannot see how such a small testing population with so few checks or balances can come up with reliable figures covering everyone’s particular circumstances across different parts of the country. And I know that Netto beand are cheap, but if you look at the detail of the figures, you have to wonder how anyone can possibly live so cheaply over time.
A worrying thing is that creditors considering debtors’ IVA proposals use figures based on the FES to calculate how much they can afford to pay into the IVA every month: no wonder so many income based IVAs fail!
But what else can the OR use in the absence of reliable figures? I believe that some common sense would be a good start, supported by a recognition that the base figures they are using are unreliable and should be used as a guide only.
If you are in bankrupcy, and are being asked to sign an IPA that you consider unreasonable, my advice to you is not to sign up, but willingly go to court to ask the District Judge to assess its level. But go armed with evidence of what it costs for you to live, take a book setting out all of your living costs over time, take the till receipts and bank statements. Use the time you have until the hearing to pull together all this information. A Judge on £10k per month will struggle to give you an IPO when you earn not much more than that in a year!