If you go bankrupt the Official Receiver will review your income and living expenditure budgets. They are trying to establish if will you have to pay back anything towards your debts. If you have no surplus income at all the answer to this is no. However the rules about how much you have to pay back if you do have a surplus income have changed.

Before the 1st of December 2010 you could keep any surplus income up to £100. You would have been required to pay pay 70% of anything over £100 as an Income Payment Agreement for three years. However these policies have now changed. Now if you have any surplus income it is likely that you will have to pay 100% of this as a Bankruptcy debt payment.

New Bankruptcy Debt Pay back rules

From the 1st of December 2010 if you have gone Bankrupt the Official Receiver (OR) is required to insist that you to pay back as much as you can towards your debt through an Income Payment Agreement.  If you have no surplus income you will pay nothing. However if you have a surplus you will have to pay all of this back towards your debts for three years.

There is no longer a sliding scale. 100% of your surplus income now has to be paid towards your debts. If your surplus is just a few pounds this may still be exempt. However if it is £10 or more you must expect to have to hand all of this over.

This change is unlikely to make any difference to your creditors if you are only able to pay a small amount each month. The reason for this is that the money you pay back will simply be used to help pay the OR’s costs and fees. As such is the change is possibly the result of the recent Government cuts and the need for the insolvency Service to collect every penny they can.

Do you have to pay back debt if you went Bankrupt before December 2010?

If you were declared bankruptcy before 1st Dec and currently have an income payment agreement in place this will continue as normal. If during the three year period your circumstances get worse the amount you pay will be reduced. The assessment will still be based on the old policy.

However if you were bankrupt before December 1st and are not yet subject to an income payment agreement, if you circumstances improve, the new criteria will be used and you are far more likely to get an IPA.

One concern about this is that it is likely to deter people who are already bankrupt from trying to improve their financial situation. This is a fair argument. However in reality this will only affect a relatively small number of people. The government is more concerned about the potentially huge number of people who are likely to declare themselves bankrupt in the coming months and years.

Is Bankruptcy a good option if you have to pay back some of your debt?

Although the recent changes will will make it more likely that you will have to pay back some of your debt it is still a very good solution for many people. The fact remains that Bankruptcy itself still only last 12 months. After this all your unsecured debt is written off. If you cannot afford to pay back anything towards your debt you do not have to.

However even if you are required to make a payment towards your debts this will only last for three years. This is far shorted to compared to the Individual Voluntary Arrangement (IVA) which is widely regarded as the best alternative to Bankruptcy.  In addition the minimum payment in an IVA is around £150 a month. There is no minimum payment for Bankruptcy.