Flashcards in Bankruptcy Deck (29)
What are the 3 ways that an individual can be made bankrupt with an issue of a bankruptcy order from the court?
Individual petitions for their own bankruptcy
A creditors petition - this needs to prove that the debtor can not pay their debts and must prove that they are owed more than £5000 in unsecured debts
Application by an insolvency practitioner following the terms of an IVA being broken
Once a bankruptcy application has been agreed, what happens next?
Bankruptcy order is issued
Control of debtors property will pass to the official receiver (OR)
The individual will receive a letter from the OR within 2 weeks of the courts decision
What must the debtor do once the application for the bankruptcy has been agreed?
Submit a statement of affairs to the OR ( info on debts, assets and income
Explain how the situation arose
They may be interviewed by the OR
When must the OR call a creditors meeting?
If at least 10% of the creditors(value) demand it
What happens at the creditors meeting?
Creditors can appoint a trustee in bankruptcy
Trustee can be the OR or an insolvency practioner
If no meeting is held hten the OR will be the trustee in bankruptcy
What is the job of the trustee in bankruptcy?
Collect all of the debtors property
Make payments to creditors in order of priority
What is the priority for payment ? (7)
Secured creditors with a fixed charge
Expenses of bankruptcy ( fees and costs of the trustees in bankruptcy and OR)
Preferential creditors (money owed to employees such as unpaid pension/wages etc)
Creditors with a floating charge ( under a debenture)
Unsecured creditors and other debts ( except bankrupt's wife or civil partner)
Interest due on debts since the bankruptcy order
Debts to bankrupt's spouse/C Partner
What items can the individual keep?
Tools for the trade
Household items ( although these can be asked to be surrendered if a cheaper alternative can be found)
What will be frozen?
Bank accounts will be frozen but trustee can release money if urgent
A spouse/share of joint accounts will be frozen
Can the home be sold?
What happens to the home if this is in joint ownership?
The individuals beneficial interest is transferred to the trustee and notice is given to the Land Registry so that the trustee will be notified of any subsequent dealings
the house sale may be prevented if the value of the beneficial interest is less than £10000 or can be sold to someone else eg a spouse/Partner. If the individual needs to organise for somewhere to live ie Partner/Children then the sale can be delayed for up to 12 months
What is the timescale for the family home to be dealt with?
Within 3 years of the bankruptcy order
What can happen with prior transactions before the individual became bankrupt?
If they had made a gift (eg as a transfer as a settlor into a trust) or sold something at a value below market where the transaction took place:
* in the 2 years before the presentation of the bankruptcy petition
* Between 2-5 years before the presentation of the bankruptcy petition and at the time of the transaction the bankrupt was insolvent or became so as a reslt
What rules are in place to protect any transactions that might have been made where some creditors have been treated more favourably then others?
Six months prior to the petition or
Two years prior to the petition if the preference was in the favour of a associate ie spouse, friend etc
( the trustee has to show that the individual was either insolvent at the time or that they became insolvent due to this preference)
When will a debtor be discharged from the bankruptcy restrictions?
From 12 months after.
However the assets in the estate can be still used to pay the debts during the 12 months
What are the implications if the OR considers that the conduct of the bankrupt has been dishonest or blameworthy? (3)
*OR can report the facts to the court
*May ask for a bankruptcy restriction order (BRO)
*If the court can agree then there could be further restrictions to the period which could run from 2 years to 15 years.
During the period of bankruptcy restrictions the individual cannot:- (6)
* Borrow more than £500 without advising the lender that they are bankrupt
* Act as a director of a company
*Create a company without the company's permission
*Manage a business under a different name without telling people who have dealings with that business that you are bankrupt
*Work as an insolvency practitioner
*Act as a Member of Parliament/mayor/school governor
What happens to a life policy that the bankrupt owns?
If it is not in trust then control will pass to the trustee in bankruptcy
A policy in trust would not be considered as property of the bankrupt
What happens to the pension benefits if someone became bankrupt before 29th May 2000?
They were treated as part of their estate and would fall under the control of the trustee in bankruptcy
What happens to the pension benefits if someone became bankrupt after 29th May 2000?
*This would fall out of the bankrupt's estate and protected against any claim made by the trustee in bankruptcy. Applies to occ, group, personal but not unregistered
* if there were any excessive contributions compared to other years then if the trustee can prove that the intention has been to deliberately deprive creditors then this could cover contributions up to 5 years.
What happens if the pension is already in payment?
*Trustee can apply to the court for an income payments order (IPO) so that the pension payments are made to the trustee in order to provide contributions to paying creditors. it will run for a maximum of 3 years and apply after the bankruptcy has been discharged.
* This is subject to the bankrupt and their family having sufficient remaining income to live reasonablly
What is an informal arrangement(or family arrangement? (5)
*A debtor approaching their creditors to see if a reduction in amount owed can be agreed
*Creditors are not obliged to agree
*Often they need financial information to agree
*If agreed this normally results in regular monthly payments
* advantage is it avoids charges
What is a disadvantage of an informal arrangement?
*Not legally binding
*creditors could ignore it and ask for full payment
What is a debt management company?
*An alternative to bankruptcy
*Agreement between debtor and their creditors to pay off unsecured debts with a licensed debt management company (authorised by FCA) acting as an intermediary
*Debtor pays regular amounts to the company and then this is shared with creditors
*the company will contact creditors to check if they agree but they do not have to
The company tend to charge an initial fee and a handling fee for each payment
*If debtors do not pay then the plan can be cancelled
What is a debt relief option? (DRO) (8)
It is suitable for:
* people who can not pay their debts
* Do not own their own home
* Do not have more than £50 per month disposable income
*Assets do not exceed £1000
* Have qualifying debts of less than £20000
* Are domiciled in England and Wales
*Have not been subject to DRO in the last 6 months
* Are not involved in any other formal insolvency procedure
How long does a DRO ( debt relief option) last for?
At that time creditors can't take action for recovery without applying to the court
After the time, if there are no change in circumstances, the insolvent person will be freed from debts
What is an IVA? (10)
* Debtor makes a formal proposal to the creditors to repay part or all of their debts
* Individual needs to apply to the court
*It must be helped by the insolvency practitioner
* Details of the proposal are sent to the creditors and a meeting is held
* if 75% of creditors agree, the proposals are accepted
* all creditors are then bound by IVA
*IVA lasts 5 years and ends when all payments are made
* Costs are normally less than bankruptcy
* avoids the restrictions which apply to a bankrupt
* it is also possible to keep certain assets eg family home which would be lost under a bankruptcy
What is an administration order?
This is an alternative to bankruptcy where:
* A county court or high court judgement against them which they cannot pay in full
*Owes money to at least 2 creditors
*Has total debts of less then £5000