Personal Insolvency

Question 1

What is the minimum debt required for a creditor to present a bankruptcy petition against an individual?
A. 5000 pounds
B. 1000 pounds
C. 2000 pounds
D. 750 pounds

Answer 1

A. 5000 pounds

Explanation: Under the Insolvency Act 1986, a creditor can petition for an individual’s bankruptcy if the unsecured debt is for a liquidated sum exceeding 5000 pounds.

Question 2

How long does a bankruptcy typically last before automatic discharge if the individual complies with all duties?
A. One year
B. Three years
C. Five years
D. Ten years

Answer 2

A. One year

Explanation: A bankrupt is usually discharged after one year unless their discharge is suspended due to non-compliance.

Question 2

What percentage of creditors (by value) must approve an IVA proposal for it to become binding?
A. 75 percent
B. 60 percent
C. 51 percent
D. 90 percent

Answer 2

A. 75 percent

Explanation: For an Individual Voluntary Arrangement to be approved, at least 75 percent (by value) of the voting creditors must vote in favour, subject to the rule on unconnected creditors.

Question 3

Which of the following transactions has no time limit for being challenged by the trustee?
A. Transaction at an undervalue
B. Preference
C. Extortionate credit transaction
D. Transaction defrauding creditors

Answer 3

D. Transaction defrauding creditors

Explanation: A claim for a transaction defrauding creditors under section 423 of the Insolvency Act 1986 has no time limit, unlike undervalue and preference transactions.

Question 4

James transferred a valuable asset to his sister two years before the presentation of the bankruptcy petition for no consideration. What is the most likely claim the trustee will make?
A. Transaction defrauding creditors
B. Preference
C. Extortionate credit transaction
D. Transaction at an undervalue

Answer 4

D. Transaction at an undervalue

Explanation: A gift to an associate within five years of the bankruptcy petition is presumed to be a transaction at an undervalue under section 339 of the Insolvency Act 1986.

Question 5

A debtor proposes an IVA which is approved by 75 percent of voting creditors but rejected by more than half of the unconnected creditors. What is the result?
A. The IVA is approved and binding
B. The IVA fails
C. The IVA must be sanctioned by the court
D. The IVA is binding only on consenting creditors

Answer 5

B. The IVA fails

Explanation: Even if 75 percent of creditors approve the IVA, it is not effective if more than 50 percent (by value) of unconnected creditors vote against it.

Question 6

John, a bankrupt, refuses to attend meetings with the trustee and ignores requests for information. What consequence may he face?
A. A Bankruptcy Restriction Order
B. Automatic discharge after one year
C. Criminal prosecution with a fine only
D. Reinstatement as director

Answer 6

A. A Bankruptcy Restriction Order

Explanation: Failure to cooperate with the trustee is a ground for a Bankruptcy Restriction Order, which can extend bankruptcy restrictions for up to 15 years.

Question 7

If a bankrupt individual transferred assets with the intention of putting them beyond creditors’ reach, which type of claim would the trustee most likely bring?
A. Preference
B. Extortionate credit transaction
C. Transaction at an undervalue
D. Transaction defrauding creditors

Answer 7

D. Transaction defrauding creditors

Explanation: A transfer intended to hinder or defraud creditors is a transaction defrauding creditors under section 423 and can be challenged without any time limit.

Question 8

A trustee wishes to challenge a transfer of assets made to the bankrupt’s partner 18 months before the petition. What must the trustee prove?
A. That the transaction was made with intent to defraud
B. That the bankrupt became solvent as a result
C. That the bankrupt was insolvent at the time or became so as a result of the transfer
D. That the bankrupt made a declaration of solvency

Answer 8

C. That the bankrupt was insolvent at the time or became so as a result of the transfer

Explanation: For preference or undervalue claims, the trustee must prove insolvency at the time or as a result of the transaction unless the recipient is an associate, in which case insolvency is presumed.

Question 9

What is the first priority in the bankruptcy order of payments?
A. Ordinary unsecured creditors
B. Trustee’s remuneration
C. Preferential creditors
D. Secured creditors

Answer 9

D. Secured creditors

Explanation: Secured creditors are paid first from the assets covered by their security, up to the value of that security.