Deduction from earnings orders and statutory debt options

• Bankruptcy and protected trust deeds
• Deduction from earnings orders and the Debt Arrangement Scheme

Bankruptcy and protected trust deeds

If the client is being made insolvent, a DEO ceases when the client is awarded sequestration or is granted a protected trust deed.

The client is still required to pay ongoing child maintenance after the date of sequestration or granting of a trust deed. Ongoing payments must be evidenced and included in the Common Financial Tool (CFT) calculation. Also essential is ensuring you add any monies being deducted via the DEO for arrears back into the income part of the common financial statement/CFT (see here). Failure to do this can result in any disposable income being incorrect and any ‘debtor contribution order’ (DCO) having to be changed. It can also mean a client who you assumed qualified for minimum asset process bankruptcy no longer does. A DCO states the amount you need to pay during your bankruptcy and is set by the Accountant in Bankruptcy.

The employer cannot stop the DEO until they have received word from the CMS recalling or stopping the DEO.

The CMS has been known to be slow in stopping deductions from a DEO and you may have to email and call several times to get the DEO stopped after your client is insolvent.

Unlike direct earnings attachments (DEAs), the client is refunded any monies paid to the CMS after they are insolvent.

All outstanding child support arrears discharge when the client is discharged. This differs from paying parents in England and Wales, who are still liable for any arrears when their insolvency ends.

Deduction from earnings orders and the Debt Arrangement Scheme

A Debt Payment Programme (DPP) under the Debt Arrangement Scheme (DAS) cannot protect a client from enforcement of child maintenance arrears. When applying for a DPP under the DAS, if a client has a DEO for arrears only, they can add this debt to their application. It is then up to the CMS to approve the DPP and remove the DEO. Any monies deducted must be added back into their CFT or Common Financial Statement to create an accurate picture of the client’s financial situation. If, however, they have a DEO for both current maintenance and arrears, the approved debt adviser needs to find out the amount of arrears the client has from the CMS. They can then enter the arrears into the DPP and, if approved, the DEO must be adjusted to include current maintenance payments only. It is a standard condition of the DAS that ongoing child maintenance is paid. Failure to do so can result in the approved DAS being revoked.