A reader has asked:
I have been offered redundancy. I would like to retrain for a more interesting job, but I still have nearly a year of IPA payments to make, so will the Official Receiver take all my redundancy pay?
It depends on your discharge date
The answer to the question depends on whether the last day of employment is before or after the date of discharge from bankruptcy. There are three cases:
- the last day of your employment is before you went bankrupt In this case the redundancy pay is treated as an asset that you owned when you went bankrupt and it therefore belongs to the Official Receiver (OR).
- the last day of employment is after bankruptcy but before discharge Here the redundancy pay is treated as an “after-acquired asset“. You are obliged to notify the OR about this and the OR will arrange for it to be paid to him.
- the last day of employment is after discharge In this case the money does not go to the Official Receiver as an asset, it belongs to you. This applies even if you have a Bankruptcy Restriction Order.
The reader didn’t give specific dates, but as he will have been discharged after 12 months and as Income Payments Arrangements run for 3 years and his has only a year to go, it is clear that he must already have been discharged. In this case he will be able to keep his redundancy pay.
What about Pay in Lieu of Notice?
Pay in lieu of notice is treated in the same way as redundancy pay. It is treated not as income but as an after-acquired asset.
However if you have no other income as you have applied for benefits and they are not yet being paid, discuss this with your OR.
What happens to the IPA?
The redundancy money is not counted as income, so he won’t have to use it to keep paying the agreed IPA. Instead, he should inform the OR of his new income, which whilst he is retraining and then looking for a new job will probably be a lot lower. The OR will then recalculate the IPA and this may well cease.
What about benefits?
If his income is lower, he may be entitled to some benefits to help. It is difficult to say much here without knowing the specific family circumstances and what the ‘retraining’ will involve. Broadly having money in the bank from a redundancy payment will not affect non-means-tested benefits, which for someone being made redundant would include Contribution-based Job Seekers Allowance. But it may affect means-tested benefits such as Universal Credit.
Go to your local Citizens Advice if you would like to know what you are entitled to and how any of the options for retraining might affect this.
How does discharge from bankruptcy work?
Improving your credit score after bankruptcy
Bankruptcy timeline – what happens when
Susie says
Would the same apply if you inherit some money when you are bankrupt? I think I’m going to have to go bankrupt but both my parents are elderly and they would be horrified at the idea of their money going outside the family.
Debt Camel says
hi Susie, basically yes, the same applies. The important date is the date the person dies – if that is before your discharge, the money will go to the OR. There are a few extra points, I’ll do a full article in the next few days on this!
Simon says
Hi regarding redundancy payment and discharge date
Will be told I’m going to be made redundant 12 weeks before discharge date and will be redundant about 2 weeks after discharge
Question can the OR delay my discharge date to accommodate this redundancy payment as I believe I have to inform them of my impending redundancy
Sara (Debt Camel) says
Hi Simon,
no, the OR would have to apply to the court to suspend your discharge and this is only done if you are not co-operating in some way, not just to try to get some more money!
Simon says
Hi Sara thnx for your quick response that’s GREAT news fingers crossed I make it till my discharge date thanks again x
Simon says
Hi Sarah regarding redundancy is the period of notice given by my employer relevant to the OR
Example
While on notice which is 12 weeks as I understand it I’m still employed even though I might have actually left employment as a would be paid severance pay instead of actually working my notice
How would the OR see this ?
Sara (Debt Camel) says
Hi Simon, pay in lieu of notice is treated by the Official Receiver as “property”, not as income.
You need to find out from your employer the date on which you are being made redundant, then you need to inform the OR of this. If the OR says that your redundancy payment needs to be paid into your bankruptcy, then I suggest you ask for this in writing and then go to your local Citizens Advice and ask them if it is correct. If you have an option about whether you work you notice or are paid in lieu I strongly suggest you should get advice now before you make that decision.
Simon says
Hi Sarah regarding my conversation with you about my redundancy and bankrupsy
Have been put on notice but I think my last day of employment will be after discharge
QUESTION do I need to tell the OR about my NOTICE ????
QUESTION can the OR claim my redundancy in these circumstances ??
QUESTION do my creditors have 42 days to claim my redundancy after discharge ???
Reference no 31.5.34 notice of redundancy
31.5.34 Redundancy payments – an after acquired asset
Where a bankrupt has received notice of redundancy but has not yet had his/her employment terminated at the date of the bankruptcy order the right to receive a redundancy payment has not yet arisen. The attention of the bankrupt should be drawn to the obligation of the bankrupt to notify the trustee in bankruptcy should he/she acquire any property, which includes redundancy payments [Note 7]. The bankrupt should be asked to acknowledge his/her obligations in writing. Any such payment should be claimed by the trustee in bankruptcy within 42 days of becoming aware of the redundancy payment as after-acquired property [Note 8]. The same applies to any redundancy payments paid between the date of the bankruptcy order and the date of discharge. Where the trustee in bankruptcy makes a claim for a redundancy payment as after-acquired property he/she should obtain details of the payer (either a private employer or the Redundancy Payments Services)and arrange for the redundancy payment element to be made directly to the trustee in bankruptcy.
Sara (Debt Camel) says
I am going to repeat what I said before: “You need to find out from your employer the date on which you are being made redundant, then you need to inform the OR of this. If the OR says that your redundancy payment needs to be paid into your bankruptcy, then I suggest you ask for this in writing and then go to your local Citizens Advice and ask them if it is correct.”
Pat says
Hi there I am at risk of been made redundant I have got 6 more IPA payments to make do I have to notify the OR and will they take all/any redundancy money I get
Sara (Debt Camel) says
With 6 months to go on your IPA, you must already have been discharged from bankruptcy. In this case the OR will not be able to claim your redundancy money. And it doesn’t have to be used to pay the remainder of the IPA either. If when your job ends you have a lower, or no, income, tell the OR and the the IPA will be reduced, possibly to zero.
Pat says
Many thanks for the reply Sara is there any way to confirm this please
Sara (Debt Camel) says
Your Official Receiver’s office will confirm it.
Barbara says
bankrupted july 2015 and was discharged July 2016 but I was paying IPA For the first year but because of circumstances the second year was zero. I still have 18 months to finish the three years IPA. I will be made redundant and possibly get early retirement would I have declare this and would I have to start paying the IPA again?
Sara (Debt Camel) says
The redundancy money will not be taken by the OR. Nor will any lump sum from early retirement.
Whether your IPA will restart depends on what your income will be. If this isn’t more than you are currently getting, it would be unusual to now have the disposable income to pay an IPA but it is possible if your pension is good and you may be losing a lot of work related expenses e.g. A very large season ticket cost.
I think you should be looking at what your general financial options are – what you would get from early retirement, whether you would be entitled to any benefits, what your state pension provisions are and whether you could improve these by buying any extra NI years, how these answers would change if you don’t take early retirement etc. Whether you pay an IPS is only a small part of this and not very important as it is only temporary. Going to your local Citizens Advice would be a good place to start, also possibly talking to Pension Wise.
Barbara says
Hello, I am out of discharge since 2016, and just been made redundant. I am still under the control of IPA until August 2018 but I am currently paying nothing (not enough funds). Now I know Ithey will not take my redundancy money but what if I took my early retirement as well as my redundancy will they take anything? What if I wanted to set up my own business? Am I still liable to pay back the council tax that was stopped when I declared bankruptcy? Sorry there’s a few questions in there and I hope you are able to help.
Regards
Barbara
Sara (Debt Camel) says
If you take early retirement and get a tax free lump sum from your pension, that can’t be taken. If you start drawing a pension, then that counts as income so it would be taken into account for an IPA.
If you set up your own business, any income from that is taken into account for an IPA. You would have to think if this was really sensible, risking using your redundancy money and possibly money from you pension if you can’t benefit much from it! It might be better to wait until your IPA period ends.
The council tax will have gone into your bankruptcy – you can check with your OR who should confirm this.
Barbara says
Hi
Sorry, I just want to be clear. So they will not touch my redundancy and they will not touch my lumpsum ,early retirement fund as long as it is tax free, even if I found another job? Because I cannot stay at home twiddling my thumbs, I will go crazy ??
Sara (Debt Camel) says
After discharge, the only thing the OR would be interested in is extra INCOME you get, not lump sums.
But you can’t just take the tax free lump sum from your pension, you have to start getting the pension as well, which increases your income. I think you should talk to Pension Wise https://www.pensionwise.gov.uk/ about your options here if you have a money purchase pension rather than a final salary type scheme. If you have a final salary scheme, you often lose a lot of money by taking them early – it could be more cost effective to live off the redundancy money for a while and take the pension later.
It’s great you don’t want to thumb twiddle – and really annoying the fact that the way IPAs are currently set up you have no incentive at all to work. But I’m serious that you shouldn’t be taking risks with your redundancy and pension money in order to hand over any income to the OR. Have you thought about what you could do for the next year that would be interesting and possibly help your buiness from next year? A book keeping course? How to set up your own website? Or look at voluntering, anything from helping reclaim local wasteland to helping children lear to read https://www.beanstalkcharity.org.uk/Pages/Category/become-a-reading-helper.
Barbara says
Thank you so much for your advice. I will now look at my options and like you said wait until next year to start up my business, but can I prep, start putting things in motion, like looking for premises and decorating etc and then start trading after the IPA ends? I have got some courses lined up for later on in the year. And will be volunteering at my church. I will definitely leave my pension where it is. Thanks again you have been most helpful.
Regards
Beverley
Sara (Debt Camel) says
Definitely! In fact you can start trading before your IPA ends – most businesses won’t make much money in their first couple of months!
Barbara says
Thank you ?
Morag says
If you have finnished paying your IPA and just wait for the OR to pay to pay your creditors and you have just been lefted money in a will will this be take off you
Sara (Debt Camel) says
Hi Morag, this article covers inheriting money after bankruptcy: https://debtcamel.co.uk/inherit-money-bankrupt/. As that explains, it depends whether the person dies before you were discharged.
Barbara says
Hi Sara,
I have an opportunity to borrow a friend’s car until I am discharged from the IPA in August 2018, which is great but what if I was to use my redundancy money to buy a car, would it been see as an asset, so then it could be taken away from me? Or will I be able to keep it. I’m looking for a small cheap and cheerful car because the car I currently have is coming to an end and it is costing more to fix than it’s worth.
Regards
Barbara
Sarah says
Hello Sara
I was made bankrupt on 3rd June. I was sacked the first week in June too. I am too ill to work but my union have told me I will receive 3 months pay in July, as a result of being sacked. I have applied for Universal Credit as I have no other income. However, my work coach has told me that I will receive no money from Universal Credit because I am receiving three months pay.
I am worried my official receiver will take the three months pay when this is all I have to live on.
I recently separated from my husband so I am having to pay half a mortgage, utilities and food now by myself until our home is sold.
If the official receiver takes my three months pay I will be completely destitute. My monthly household budget, stripped down to the bare minimum is £954. Three months pay will equal £5100 before tax and NI.
Is the official receiver allowed to leave me completely penniless and unable to pay for household bills, mortgage and food?
I am also in receipt of Personal Independence Payment to cover costs incurred because I am disabled. Can the official receiver take my PIP because I am receiving three months pay?
Kind regards
Sarah
Sara (Debt Camel) says
You have been having a very difficult time! Did you talk to a debt adviser before going bankrupt?
Steven says
Is the above advice about the OR not being able to take any redundancy monies for IPA purposes still correct in 2020? I am post-discharge but still have 2 years left of IPA if that makes a difference.
Thank you,
Steven
Sara (Debt Camel) says
Your situation if yuou have a large redundancy lump sum and no job can be complicated as that impacts on the benefits that you could claim. I suggest you need to talk to your OR and also to your local Citizens Advice about benefits.
Steven says
Top article and very useful information. I’ve been involved in acting for trustees and defending so called “windfall” claims, and ultimately I find it best to be open and not try to hide things and discuss things, try to work out a good deal.
Sandra says
Hi I was made bankrupt in may 2019 and discharged in may 2020 I have about a year left of ipa payments and have just discovered yesterday I’m being made redundant and receiving a lump sum I’ve tried contacting the OR Office and no one will give me a straight answer if they will be taking my redundancy money or not
Sara (Debt Camel) says
The article above explains that if your redundancy is after you are discharged, the money should not be taken by the OR.
But you have done the right thing in telling the OR.
Will it be easy to find another job?
Ryan says
Hi, I was rejected by one of my creditors for an IVA and have been forced to go down the bankruptcy route. I have now been told my job will cease to be at the end of the year and will have a payout. This will all be taken by the OR as per the terms, as it will be paid during bankruptcy but before the 12 months is up.
With this in mind, would it be better for me to deal direct with creditors or debt collection agencies, who will offer a 50% reduction as one off payment to settle the debt?
I really cant have no job and also nothing there to fall back on being sole earner in my home.
Thanks
Sara (Debt Camel) says
Sorry this is not an option for you once you have gone bankrupt.
(You probably wouldn’t have been any better off in an IVA either.)
Ryan says
Thanks Sara,
Sorry i wasn’t clear, i haven’t submitted the bankruptcy application just yet – so thinking it may be easier to deal with credit agencies than original creditors?
Sara (Debt Camel) says
ah! That is a massive difference.
How large are your current debts? Are you making normal payments, a variety of payments arrangements or what?
are you buying or renting? do you have a car on finance – if so is it HP or PCP?
how much do you expect to get from the redundancy?
how easy do you expect it will be to get a new job?
Ryan says
35k Debts
Not paid anything in 3 months since my IVA got rejected – most have hold on interest – few have gone to DCA already
Renting
No car on finance – own one worth 2k
Expecting just over 30k redundancy – which is tax free
Jobs not that well come where i live and certainly wont be of the level i am used to – which was enough just to cover bills/house etc etc
Sara (Debt Camel) says
did you have one very large creditor?
Ryan says
One is double the next highest debt, it was them who rejected the IVA also.
Total about 10/12 creditors, raging from £150 to 8.5k
Sara (Debt Camel) says
So your problem isn’t the debts, it’s the fact that a new job may not pay enough to cover the bills and essentials?
I think your priority has to be job hunting and thinking whether you need to move.
You can offer the creditors a small monthly payment, possibly a token £1 payment, at the moment. Until you get any redundancy money what other option do you have? Then if you do lose your job, you have the redundancy money as a cushion if your new wage is too low.
You could also look at making affordability complaints against all the debts now – see https://debtcamel.co.uk/tag/refunds/. In this situation the more you can the debts reduced the better!
I think you should talk to National Debtline on 0808 808 4000 about your options here. They have a template letter to offer £1 a month if they feel that is an appropriate option at the moment.