The Insolvency Service has recently changed its policy for the approach that ORs should take to IPOs/IPAs and the matrimonial home in bankruptcy.
The OR is now instructed to take all surplus income when calculating the level of an IPO/IPA, with the exception of £10 per month per individual in the household. The minimum level of payment that the OR will now seek from the debtor has been reduced to £20 per month. This is a clear move away from an approach that favours the debtor to one that is more in the interests of the creditors. I do, however, question whether it is economic even for the OR to recover £20 per month under an IPO/IPA and clearly there will never be any return to creditors at that sort of level unless there are other assets.
IPs will need to take into account the change in policy, both when deciding on the level of monthly payment to recover when acting as trustee, and also when completing an outcome statement showing the comparison in bankruptcy as part of an IVA proposal. I do, however, think that it is valid that IPs should take into consideration their recovery costs when setting the level of the monthly payment and that there is no need to adhere to the minimum level that the OR is prepared to accept.
In contrast to the clearly more creditor friendly approach on IPOs/IPAs, a recent policy change on the matrimonial home could work to the advantage of the debtor. The OR will not now deal with the debtor’s property until 27 months have elapsed from the date of the bankruptcy order, even if it is in negative equity. The exception to this is that if an offer for the market value of the debtor’s equity is received, which for properties in negative equity will apparently mean an offer in excess of £1,000, then the OR will agree to a sale. Effectively the OR is speculating on the property market improving over the 27 months of the bankruptcy.
The OR’s policy may, however, cause problems for IPs. We may see solicitors acting for the debtor referring to the OR’s policy when the IP applies to Court for an order for possession. The Court may feel that possession should be delayed to match the treatment bankrupt’s get from the private sector to the approach of the ORs
Where IPs are acting as trustee then they should not speculate on the property market, and as required by the insolvency legislation should continue to administer bankruptcies without delay.
