Insolvency Made Clear: A Guide for Debtors

Effect Of Bankruptcy
although it is in the interest of both the Trustee and the bankrupt for the bankrupt
to continue to trade. An application for an IPO can only be made before
the bankruptcy is discharged. An IPO can last up to three years from when it is
made (s310(6)).
‘Reasonable domestic needs’ will depend on the circumstances of each individual.
It has been held that private school fees were a reasonable domestic need,
where removal from school would be detrimental to the children. In general,
the Trustee (and the court) will be more favourable to the needs of the bankrupt’s
family than the bankrupt themselves. The bankrupt should estimate what
their typical monthly expenditure is. If the bankrupt routinely earns enough to
have savings for the future, the bankrupt should anticipate losing these savings
in an IPO. This is an area where the Trustee has a large amount of discretion,
and so a good working relationship is likely to lead to a more favourable outcome
for the bankrupt.
If the bankrupt and their family are renting property, an often contentious
topic is whether they should be forced to move to cheaper accommodation.
The Trustee should consider the impact on the bankrupt’s family, for example,
whether the home has special features to accommodate a disability.
The Insolvency Service has published guidance which can be found at https://
www.insolvencydirect.bis.gov.uk/technicalmanual/Ch25-36/Chapter31/part7/
Introduction.htm. It says its Official Receivers will seek to use the Office for
National Statistics data on the national average outgoings. However, there is no
fixed rule. The OR will not seek to collect surplus income if the surplus is too
small, e.g. less than £20 per month. In general, the bankrupt will not be allowed
luxuries at the expense of the creditors. For example, the Insolvency Service
guide says at paragraph 31.7.113 that “No allowance should be included for social
and entertainment expenses (e.g. cigarettes, alcohol, betting etc.)” and at paragraph
31.7.114 “In normal circumstances membership of a sporting club, gym,
golf club, stables etc. is not considered an essential day-to-day living requirement”.
At paragraph 31.7.116, the guide says there should be an allowance of only £10
a month for the bankrupt and for each dependant household member for ‘sundries
and emergencies’. The guidance was published in 2010. A bankrupt could
reasonably ask for more today.
An IPO can also be an order that a bankrupt’s employer or other source of
income makes a payment directly to the Trustee instead of to the bankrupt
(s310(3)(b)). The usual practice is for the order to be that the bankrupt makes
payments to the Trustee rather than make any order to a third party. However,
if the bankrupt does not meet the payments in the order themselves, the Trustee
can apply to vary the IPO for the sum to be paid by a third party.
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