Household composition
A comprehensive understanding of the household’s income and expenditure gives the most accurate determination of the available income for any contribution. It is in the interest of both creditors and clients that an accurate calculation is completed.
The CFT captures the full household income and expenditure, including that of a client’s partner or other non-dependant household members. Debt advisers/trustees should explore the entire household financial position wherever possible. Circumstances vary from case to case and it is not always possible or practicable to obtain the full household income and expenditure details – eg, a client’s partner might be disinclined to volunteer information about their income or expenditure as they feel that they have no part in the client’s financial position. In these circumstances, the reasons that the full household circumstances have not been used in calculations should be recorded as part of the CFT assessment.
A decision not to use the entire household financial position must result from individual circumstances rather than the standard practice adopted by any debt adviser, trustee or organisation. It is feasible that two similar household circumstances may be encountered, with partner income information not available in only one case. The approach adopted may result in quite different levels of disposable income. In the interest of fairness for all parties, reasonable efforts must be taken to achieve an assessment that is transparent and based on a clear methodology.
A clear rationale must set out the basis of the income and expenditure calculation. Where the partner’s income is not available, a calculation must be completed and set against the ‘trigger figure’ to establish whether trigger figures have been breached. However, the amount allowed for essential expenditure must reflect a reasonable contribution for the client which takes account of the household composition. For example, it may be reasonable to assume a 50 per cent contribution to housing and utility costs if the client has a partner but details of their partner’s income are not known. This approach also applies in cases where all that is known is that the client makes a lump-sum payment towards the general running costs of the household.
Where the entire household income is known, the CFT assessment reflects the household position. However, the excess income figure calculated relates to the household and does not indicate the contribution that would be expected from the client. A fair and reasonable approach in these circumstances is to compare the client’s income to that of the total household, producing a percentage figure. That same percentage is then be applied to the total household income surplus to calculate the client’s surplus income. This results in a proportionate allocation of surplus income and ensures the client is not prejudiced in circumstances where a partner with a higher income creates an inflated household excess income figure.
Example
You have completed a CFT for your client based on the full household income and expenditure. Your client works part time and earns 30 per cent of the household income and their partner works full time and earns 70 per cent of the household income. There is £100 of disposable income. The client’s disposable income is £30.