Bankruptcy Flashcards
(87 cards)
1
Q
What is bankruptcy?
A
Bankruptcy (or sequestration) is a legal declaration in Scotland that someone is unable to pay their debts.
2
Q
What may an individual do (or have done to them) if they are unable to to pay debts as due?
A
- They may be able to apply to the AiB for their own bankruptcy
- Alternatively creditors or a trustee in a trust deed may apply to make you bankrupt by petitioning the SC
3
Q
What happens to an individual who is declared bankrupt?
A
- Control of things that are your own, including your home, is passed to a trustee (the person who administers your bankruptcy).
- The trustee may sell assets to pay off your creditors.
- You may also be required to make regular payments from any income to satisfy payments to creditors as well.
4
Q
What are the consequences of being bankrupt to: EMPLOYMENT?
A
- Some emplyoers will not allow bankrupt persons to work for them.
- A person who has declared bankruptcy should always CHECK TERMS OF THEIR CONTRACT and BE TRANSPARENT WITH EMPLOYER before undertaking to sign an application form.
5
Q
What are the consequences of being bankrupt to: CREDIT RATING?
A
- A bankrupt person’s credit rating will become affected for a substantial period of time
- The result being they will find it hard to obtain credit in the future.
6
Q
What are the consequences of being bankrupt to: BANK ACCOUNTS?
A
- A debtor’s bank may freeze or close their accounts, meaning they will be tasked with opening an account with a new bank.
- If the debtor receives income or benefits in to an account with them they may continue to allows this.
7
Q
What are the consequences of being bankrupt to: PUBLIC RECORDS?
A
- All person’s who are declared bankrupt are registered in the Register of Insolvencies.
- Creditors and credit reference agencies can therefore check the RoI before granting potential customers credit to check with they are (or have been) bankrupt.
- RoI can be searched by anyone.
8
Q
What are the consequences of being bankrupt to: SERVICE PROVIDERS?
A
- Bankruptcy may cause some service provides to change the way in which payment is made to them to provide their service.
- Gas/Electric companies may install a meter or set up a pre-payment plan
9
Q
Who can be made bankrupt?
A
- Individuals, including sole traders
- some businesses and partnerships
- trusts
- unincorporated organisations
- Deceased individual’s estate can be made bankrupt by executor
10
Q
What is minimal asset process (MAP)?
A
A means of applying for bankruptcy for those with low income and minimal assets.
11
Q
If applying under MAP for bankruptcy a single asset can be worth no more than £….?
A
- £1000
- This excludes a vehicle worth up to £3000 which is reasonably required for work etc…
12
Q
If applying for bankruptcy under MAP what must the TOTAL VALUE of ALL assets be?
A
- No more than £2000 for all assets excluding a car worth £3000 which is reasonably required.
13
Q
If applying for bankruptcy under MAP can you own your house, and what can your debts NOT exceed?
A
- NO, a debtor applying under MAP cannot own their house either solely or jointly ( as well as any other property or land)
- Debts must be no more than £17,000
14
Q
To qualify for MAP must an individual be in receipt of state benefits?
A
- YES, for a period of at least 6 months
- OR they must have been assessed by the state as not required to make contribution towards their bankruptcy.
15
Q
An individual wishing to qualify for MAP must provide a certificate of sequestration: What is it?
A
- A certificate which provides documentary proof that a debtor is insolvent.
- When applying for MAP this must me provided and signed by a qualified money advisor.
16
Q
After satisfying all MAP criteria what will the AiB do?
A
- The AiB will conduct checks to ensure all information provided by the debtor is accurate.
- A debtor may be asked to provide additional evidence to support their application.
17
Q
If a debtor is applying for MAP and cannot provide additional evidence, or his declaration is found to be inaccurate what may happen?
A
- The debtor’s application will likely be rejected with the fee being retained.
18
Q
What is a Debtor Contribution Order (DCO)?
A
- A DCO is required in all bankruptcies, it is a fixed amount of contribution that a debtor is required to pay during their bankruptcy.
19
Q
What is DCO contribution for those awarded bankruptcy under MAP?
A
- ZERO, and no contribution will be made.
20
Q
How long do DCO’s generally last for?
A
- 48 months
21
Q
If a bankrupt debtors circumstances change before they are discharged from their bankruptcy what will happen in respect of their DCO?
A
- A re-assessment of their income and expenditure will take place.
- If it is found that the debtor now has a surplus income they will be required to pay a contribution each month for the remained of the DCO period, subject to change in circumstances.
22
Q
How long does bankruptcy last under MAP?
A
- Bankruptcy award under MAP will discharge the debtor after 6 months.
- The debtor’s trustee will remain in office for another 6 moths to finalise the bankruptcy.
23
Q
What is ‘Apparent Insolvency’?
A
A legal term by which means one cannot pay their debts as thy become due.
24
Q
One way of proving Apparent Insolvency is by using a Charge for Payment. Explain what it is and how it provides proof.
A
- A Charge for Payment is a legal document titled ‘Charge for Payment’.
- It means that a debtor owes a creditors money and the amount due should be paid within 14 days.
- Failure to make a payment to the creditor within that period will provide proof from the 15th day that the debtor is Apparently Insolvent.
25
A Statutory Demand is another way of proving Apparent Insolvency. What is this and how does it provide such proof?
- A Statutory Demand is a legal document titled "Statutory Demand".
- This is a final formal demand for payment and if not paid by the creditor within 21 days of issue the document expires and provides proof that the debtor is Apparently Insolvent.
- The proof date can be any date from the 22nd day onwards.
26
As an alternative to bankruptcy a debtor may take up a Debt Arrangement Scheme and agree to a Debt Payment Programme. Does Revocation of a DPP constitute Apparent Insolvency?
YES
- Apparent Insolvency may be constituted by a revoked DPP.
- If a DPP is revoked AND a creditor has taken up legal action against the debtor then either the debtor or creditor can apply for bankruptcy.
- A revoked DPP therefore is proof of Apparent Insolvency.
27
What is a Certificate of Sequestration?
A certificate granted by an authorised person and certifies that a debtor has demonstrated to them that they are unable too pay their debts as they become due.
28
What sort of evidence may a debtor have to provide to an authorised person to be granted a CoS?
- Income
- Assets (funds in bank accounts)
- Liabilities (invoices and demand notices)
29
Can a CoS be used to declare bankruptcy?
YES
- provided this is done within 30 days of the issue of the CoS
- Any period after 30 days will render the CoS invalid.
30
Under what circumstances would a debtor be unable to apply through MAP for their bankruptcy?
- If the total value of debt owed exceeds £17,000
| - If the total value of their assets is over £2000.
31
Other than debts and assets what other conditions must be met by a debtor applying for their own bankruptcy for MAP and full administration?
- Must have sought advice from a money adviser
- Must live in Scotland, have lived in Scotland or established a business in Scotland in the year immediately preceding the date of application.
- Must not have been made bankrupt in the last five years.
- Must pay the application fee.
32
After being discharged from bankruptcy under MAP the trustee remain in office for a further 6 months. What can the debtor NOT do in these 6 months?
- Borrow more than £2000 either solely or jointly without disclosing their status as 'discharged' bankrupt to the person providing credit
- Engage in a business unless certain criteria are met
33
If a debtor does not comply with restrictions after discharge under MAP what will happen?
WILL BE DEEMED TO HAVE COMMITTED AN OFFENCE
- Liable to a fine; or
- Imprisonment; or
- BOTH
34
Who (or what) is the Accountant in Bankruptcy?
-The AiB are Scotland's insolvency service and are an agency of the Scottish Government.
35
What is the AiB responsible for?
- Administering the process of personal bankruptcy (sequestration) and recording corporate insolvencies in Scotland.
36
What will the AiB do as a trustee for a debtor?
- AiB staff will administer the bankruptcy on behalf of the debtor
- The case may be passed to an insolvency practitioner on behalf of the AiB
- Bankruptcy will not be handled in differently and the debtor will be informed as to who is handling it.
37
What is a Debt Arrangement Scheme (DAS)?
- Statutory scheme run by the Scottish Government by which a debtor is assisted in paying their debts through a debt payment programme
- This is done by giving them more time to pay debts without the threat of legal action from creditors.
- If approved it will freeze all interest, fees and charges on the debt included.
- If a debtor fully completes the DPP the interest fees and charges will be written off.
38
What is the purpose of a moratorium application?
- Prior to a application of a DAS a debtor may make an application for a moratorium application.
- This provides a six week period where creditors cannot take legal action against them
39
What is the benefit to the debtor of a moratorium?
- If a debtor is unsure about what their next step should be, it provides six weeks to consider their options without facing any action from creditors.
40
How many times can a moratorium application be made?
Once in a twelve month period.
41
What does DAS do in respect of interest, fees and charges on debt?
- All frozen from the date at which the DAS payment programme is approved.
- If a debtor completes the DAS payment programme then all interest, fees and charges on debt will be written off.
42
What is a voluntary trust deed?
- An agreement between the debtor and the creditors to repay part or all of the due amounts.
- Under a voluntary trust deed the debtor's rights to their assets is transferred to the trustee who will sell them on to pay creditors valued owed.
43
When does a trust deed become 'protected'?
- Where a creditors agrees to the terms of the trust deed it becomes protected.
- This means the creditor cannot take any action against the debtor to recover costs or make them bankrupt.
44
When can creditors make you bankrupt?
Creditors
- Can petition the SC to make you bankrupt if you owe them more than £3000 (incl. fees, interest and charges)
- they have provided you with a copy of a statutory booklet called the ‘Debt Advice and Information Package
- you are Apparently Insolvent (creditors can prove you are apparently insolvent if you have formally told them you cannot pay debts)
45
Who is the trustee in the bankruptcy process?
- Under MAP the AiB
- Standard Bankruptcies may allow for the debtor to choose their own trustee.
- If bankruptcy is declared through apparent insolvency or CoS route then the AiB will be appointed unless the debtor has nominated an Insolvency Practitioner
46
Who is the trustee when the creditor petitions for bankruptcy?
- The creditor can nominate the AiB or an Insolvency Practitioner to act as trustee.
- If no one is nominated then the AiB will be the trustee.
47
When does bankruptcy end?
- In MAP the debtor is usually discharged after 6 months
- In standard bankruptcies it is usually 12 months before the debtor is discharged - providing terms and conditions have been meet.
48
What is a Bankruptcy Restriction Order (BRO)?
- Similar effect to that of bankruptcy in that a debtor is placed under certain restrictions AFTER their bankruptcy has ended.
49
Where in legislation can information of BRO's be found?
s.155 of the Bankruptcy (Scotland) Act 2016
50
Why were BRO's introduced?
- As a means of placing restrictions on debtors for behaviour for which they were dishonest or blameworthy.
51
Who may make an application for a BRO?
- The AiB
| - A sheriff
52
How long may the AiB make a BRO order for?
s. 159(2)(a) of the 2016 Act
| - A period of at least two years to a period not exceeding five years.
53
How long may a sheriff impose a BRO order for?
s. 159(2)(b) of the 2016 Act
| - A period of at least five years to a period not exceeding fifteen years.
54
When would a BRO order be imposed?
Behaviours considered dishonest and blameworthy such as:
per s.156
- Incurring debts which the debtor has no chance of repaying
- Giving assets away or selling them at below market cost
- Not cooperating with trustee during bankruptcy.
- Gambling, rash speculations or being unreasonably extravagant.
55
What type of restrictions will a debtor face under a BRO?
SIMILAR TO BANKRUPTCY
- must disclose to creditors that they are subject to a BRO if they, jointly or solely, wish to get credits of more than £2000
- If a debtor wishes to obtain credit of any amount and already have debts of £1000 they mist make the creditor aware of their BRO
- The debtor must disclose to those they wish to do business with the name (or trading style) under which they were made bankrupt.
56
What is a gratuitous alienation?
s. 98 of the 2016 Act
| - where a company or individual gives away property either for free, or for below market value.
57
Why do debtor's undertake in gratuitous alienations?
- As a means of preventing creditors from realising their assets.
- Gratuitous alienations provide a means of certain assets of the debtor being subject to their bankruptcy
58
Who may challenge a gratuitous alienation?
- A creditor
| - Trustee of sequestration
59
When challenging a gratuitous alienation how far may a trustee or creditor go back?
- If a transactions takes place between the debtor and associate of the debtor the trustee may go back 5 years before date of sequestration
- For anyone else who is not an associate the trustee may go back 2 years before date of sequestration.
60
What is an 'associate' of the debtor in respect of a gratuitous alienation?
s.229 of the Bankruptcy (Scotland) Act 2016 provides broad definition.
61
What are the defences to a gratuitous alienation?
- that immediately, or at any time since the date of the alienation, the debtor was absolutely solvent
- that the alienation was for adequate consideration
- that the alienation was a reasonable birthday, Christmas or other
conventional gift
- that the alienation was a reasonable charitable donation made to a person who was not an associate of the debtor.
62
What is an unfair preference?
- Where a debtor chooses to pay a creditor shortly before going in to bankruptcy.
63
What may be done if an unfair preference is proven?
s. 99(6)(a)and(b) of the 2016 Act
| - The unfair preference will be reduced and restored to its orignal property.
64
What are the time limits for unfair preferences?
s. 99 of the 2016 Act
| - a preference made to a creditor no longer than 6 months before date of sequestration.
65
Dave transfers the title of a flat he has bought in his own name as an investment to his mistress Jane three years before he is sequestrated. Can this be challenged as a gratuitous alienation and, if so, by whom? What are the relevant dates to be considered here?
- Bob has transferred his flat to his mistress. Under the definition of s.229 of the B(S)A 2016 she is not deemed an associate and therefore the period of the transaction is out with the power of the Act which for non-associates is two years.
- The relevant date would be 2 years from the date of sequestration to the date of transfer of title which is three years and thus cannot be included.
66
Dave purchased a diamond ring for his wife at £5000 3 years before the date of sequestration. What possible routes of challenge are open and where does the onus of proof lie?
- In this case the wife of Dave is an associate per the legislation and would therefore fall within the five year timeframe, making it liable to being reduced.
- Dave may wish to refer to certain defence most likely that the ring was a gift for birthday or Christmas.
67
What conditions must be met under the full administration route in to bankruptcy?
- Debts totalling £3000 or more.
- You must be living in Scotland or have lived in Scotland sometime during the last year
- You must not have been made bankrupt in Scotland in the last five years
- Must pay the application fee of £200
- You have received money advice from an approved money advisor
- Must be either apparently insolvent, hold a CoS AND do not qualify through MAP
68
What is the application fee when applying for MAP?
£90
69
Under full administration when is the earliest a debtor will be discharged?
12 months.
70
How does the bankruptcy process end for the trustee?
- Trustee is not discharged until they have finished administration the debtor's bankruptcy
71
After discharge is a debtor required to do anything? And if so what?
- Continue to pay DCO
- provide your trustee with information on your current financial affairs every six months until your debtor contribution order has ended
- keep your trustee informed of any changes in your circumstances, for example, if you move home or financial circumstances change
- co-operate fully with your trustee at all times
72
Can a trustee sell the home of the debtor?
YES, per s.112 of the B(S)A 2016
| - And dependant on certain other circumstances.
73
What can a trustee do in respect of a debtor's home where the debtor OWNS SOLELY the property?
- Along with other assets the home will vest in the trustee meaning the trustee has full control over what is done with it.
- The trustee may sell the home to satisfy debts.
- The trustee may allow spouse, family or friends to buy the debtor's interest in the home.
74
When deciding what to do with a home owned solely by the debtor what will the trustee take into consideration?
- The value of the home
- Is there a secured debt on the home
- Dependants living in the home.
75
What may the trustee do when a debtor USED TO OWN their own home?
- Will ascertain whether the debtor sold the house for full value and if so what was done with such funds.
76
Under what circumstances would a debtor be deemed to have committed an offence under the B(S)A 2016 in relation to previously owning their own home?
If the trustee discovers that the debtor:
- Disposed of the home to either their spouse or other party for little or no consideration
- Has hidden funds from the trustee as an attempt to avoid the sequestration process.
77
What may a trustee do if the debtor JOINTLY OWNS their home?
- The trustee will collectively have a discussion with all joint owners as to the best course of action.
- The trustee often will ask if the joint owner wishes to purchase their interest in the home.
- The joint owner, if he so choose, can purchase the interest either by lump sum, monthly instalments or re-mortgaging.
78
What can a joint owner not do?
- Sell the home without permission of the trustee.
79
When will a trustee have no right to sell a debtor's home?
If the debtor is renting their home.
80
What can the trustee do in circumstances where the debtor is paying a high amount of rent?
- The trustee can apply to the sheriff to have a max limit as to what the debtor should be for rent.
- This allows for contribution to be made to the debtor's bankruptcy via a DCO
81
Can a trustee prevent the repossession of a home by a secured lender?
NO
- Trustee has no power to prevent repossession.
82
If a secured lender chooses to sell the debtor's home what will happen if:
(a) there is money left over after satisfying the secured debt?
(b) the sale does not generate enough capital to satisfy debt?
(a) Leftover funds will be transferred to the trustee
| (b) Shortfall of sale will likely be added to the bankruptcy
83
What moveable property may be exempt from bankruptcy?
- A vehicle up to the value of £3000 which is reasonably required for work etc...
- Equipment that is needed in the course of employment up the the value of £1000
- Furniture which is required for day to day living
84
What is acquirenda?
- Any property or right received by a debtor between the date of sequestration and date of discharge vests in the trustee.
- Acquirenda now means that any asset or right received by the debtor up to four years after the date of sequestration will vest in the trustee.
85
What was the change to Acquirenda meant to achieve?
- Prevents debtors with personal injury claims delaying raising a court action or settling with insured until after date of discharge to avoid claims being vested in trustee.
86
In what circumstances can a trustee in a trust deed still petition to have the debtor made bankrupt?
- If the debtor does not cooperate with the trustee during period of the trust deed.
- If they believe filing for bankruptcy would raise more money for creditors.
87
When is a debtor eligible to enter in to a trust deed?
- Where they have sufficient assets (incl. home either wholly or jointly) or
- Where they can make regular payments from their income to trustee.
