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?
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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.
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
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.
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-dmp-dro-iva-bankruptcy/
As that explains, it depends whether the person dies before you were discharged.
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?
Emma says
Hi, My discharge date is in 43 days time. I have to make a decision about applying for Voluntary Redundancy before that point but my last day of employment will not be for about 2.5 mths. Firstly do I have to notify the OR and secondly are they able to take my lump sum if my application is approved
Sara (Debt Camel) says
I think it is the last date of your employment that matters. You can check this with the OR’s office.