Notes for Guidance - Common Financial Tool

6.1 Bankruptcy applications submitted to AiB in which the debtor’s sole income is derived from state benefits will not require evidence supporting the expenditure in the CFT.

6.2 Only proof of benefits will be required. In every case the supporting evidence should, however, be obtained and retained by the money adviser/trustee as per regulatory requirements.

6.3 The essential expenditure category does not include a set trigger figure. Money advisers/trustees must verify all the expenditure that falls within this category (except for evidence of a TV licence) as relevant documentation should be available.

6.4 Advisers should use their judgement in determining accurate essential expenditure figures. Only in exceptional circumstances, for example where energy costs are deemed excessive in relation to property type, should further checks be made.

6.5 Essential expenditure includes the main elements of housing costs including rent (with any service charges and factor fees), mortgage payments, Council tax, buildings and contents insurance and utility bills.

6.6 The following categories should be evidenced by original documentation from the appropriate authority or company, or by examination of payments made from the debtor’s bank account:

• rent
• ground rent, service charges, factor fees
• mortgage
• other secured loans
• mortgage endowment/mortgage PPI
• council tax
• building and contents insurance

6.7 Evidence, or written explanation, to support declared utility spend – gas, electricity and others (coal, oil, Calor gas, solid fuel etc) can include:

• future consumption estimates determined by a qualified fuel advisor
• annual consumption projection statements obtained from the fuel companies
• historic utility bills
• direct payments recorded in bank statements

6.8 AiB will only require sight of supporting evidence/estimates if it has been determined that the spend will exceed £130 per month. This will increase to £143 per month from the 1 October 2024.

6.9 The treatment of council tax varies based on the policies set by each local authority; therefore, it is important to establish and reflect individual circumstances prior to submitting an application.  For example, if the local authority includes the entire year’s council tax liability as a debt in a bankruptcy, no council tax expenditure would be expected on the CFT upon submission of the bankruptcy application. If circumstances change after the award of bankruptcy, an adjustment to the CFT and, if appropriate, a variation to the DCO can be made.

6.10 It is beneficial for the debtor’s Council tax payments to be calculated over a 12-month period rather than a 10-month period. This will ensure a more accurate monthly expenditure throughout the term of a possible DCO.

6.11 A request can be made to a local authority for the debtor’s council tax payments to be made over a 12-month period. However, such a change will be at each local authority’s discretion and may be dependent on the method of payment of Council tax

6.12 A council may suspend a debtor’s right to pay their Council tax by instalments if the debtor is made bankrupt or grants a trust deed. If this happens, their DCO amount may have to be varied, if Council tax was originally included in the debtor’s expenditure calculation.

6.13 Essential expenditure also includes other costs not directly related to housing costs. As with housing costs, evidence should be available for the following expenditure items from either correspondence/bills from the organisations involved or from evidence available form bank statements:

• pension and life insurance
• magistrate or sheriff court fines
• maintenance or child support
• hire purchase/conditional sale
• childcare costs
• adult care costs

6.14 Careful consideration must be given to any hire purchase or conditional sale agreements that are in force. Checks should be made to establish if there is a clause in any agreement whereby the agreement will become null and void if the holder is made bankrupt or subject to insolvency proceedings. Money advisers/trustees must ensure that they obtain proof of the type of agreement the client has entered into, as some debtors are not aware of the distinctions between differing types of credit agreements.

6.15 This expenditure may be allowed if the items included are essential and the payments being made are reasonable in the circumstances.

6.16 An explanation of the expenditure allowed should be included as part of the CFT to highlight the items and the reason for the expenditure. Whether items bought on this type of credit agreement are essential will depend on the debtor's situation (for example, a car providing the only way of travelling to work would be deemed as essential).

6.17 If an item included is considered not essential, money advisers/trustees should refer the debtor to a specialist organisation, such as Citizens Advice Consumer Service or Trading Standards, who will be able to provide advice regarding cancellation rights and any costs involved.

6.18 If the debtor 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 debtor can evidence the payments made and reason for the payments.

6.19 However, consideration must also be given to the need for the debtor to make the payments and they may be disallowed if the payment amounts are in excess of the debtor’s needs.