Essential expenditure
Bankruptcy applications submitted to the AiB in which the client’s sole income is derived from state benefits do not require evidence supporting the expenditure in the CFT. Only proof of benefits is required. In every case, the supporting evidence should, however, be obtained and retained by the debt adviser/trustee as per regulatory requirements.
The essential expenditure category does not include a set trigger figure. Debt advisers/trustees must verify all the expenditure within this category (except for evidence of a TV licence) as relevant documentation should be available. Advisers should use their judgement in determining accurate essential expenditure figures. Further checks should only be made in exceptional circumstances – eg, where energy costs are deemed excessive in relation to the property type.
The following categories should be evidenced by original documentation or by examination of payments made from the client’s bank account:
•rent;
•ground rent, service charges, factor fees;
•mortgage;
•other secured loans;
•mortgage endowment/mortgage PPI;
•council tax;
•building and contents insurance.
Essential expenditure also includes other costs not directly related to housing costs. Evidence should be available for the following expenditure items from correspondence/bills from the organisations involved or from bank statements:
•pension and life insurance;
•magistrate or sheriff court fines;
•child maintenance;
•hire purchase/conditional sale;
•childcare costs;
•adult care costs.
Evidence should be kept for two years from when the bankruptcy was awarded.
Energy costs
Evidence, or a written explanation to support declared expenditure on gas, electricity and other fuels (eg, coal, oil, Calor gas and solid fuel) can include:
•future consumption estimates determined by a qualified fuel adviser;
•annual consumption projection statements from the fuel companies;
•historic utility bills;
•direct payments recorded in bank statements.
The AiB only requires sight of supporting evidence/estimates if it has been determined that the spend will exceed a specific amount. This could vary based on the energy price cap, so check the CFT guidance for updates.
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Council tax
It is beneficial for the client’s council tax payments to be calculated over a 12-month period rather than 10 months. This ensures a more accurate monthly expenditure throughout the term of a possible DCO.
A request can be made to a local authority for the client’s council tax payments to be made in 12 instalments. However, such a change is at the local authority’s discretion and may depend on the payment method.
A council may suspend a client’s right to pay their council tax in instalments if they are made bankrupt or grant a trust deed. If this happens, their DCO amount may have to be varied if council tax was originally included in the client’s expenditure calculation.
Hire purchase
Careful consideration must be given to any hire purchase (HP) or conditional sale agreements that are in force. Checks should be made to establish if there is a clause whereby an agreement becomes null and void if the holder is made bankrupt or subject to insolvency proceedings. Debt advisers/trustees must ensure that they obtain proof of the type of agreement the client has entered into, as some clients are not aware of the distinctions between different types of credit agreements.
This expenditure may be allowed if the items included are essential and the payments are reasonable in the circumstances. An explanation of the expenditure allowed should be included in the CFT to highlight the items and the reason for the expenditure. Whether items bought on this type of credit agreement are essential depends on the client’s situation – eg, a car providing the only way of travelling to work would be deemed as essential.
If an item is not considered essential, debt advisers/trustees should refer the client to a specialist organisation, such as Advice Direct Scotland or Trading Standards Scotland for advice about cancellation rights and any costs involved.
If the client has declared they are making a payment towards a third party’s HP agreement or paying a reasonable amount directly to a third party for the use of a vehicle that they will not own, these payments may be treated as a legitimate expenditure, provided the client can evidence the payments made and the reason for the payments. However, consideration must also be given to the need for the client to make the payments, and they may be disallowed if the payment amounts are in excess of the client’s needs.