7.15 Bankruptcy Flashcards
What is the purpose of bankruptcy?
◦ The purpose of bankruptcy is to grant relief to a debtor who cannot pay their creditors.
◦ It also aims to fairly distribute the debtor’s assets to their unsecured creditors.
What is the duration of bankruptcy?
◦ It is a legal process, usually lasting for one year, at the end of which the debtor is typically discharged from their financial obligations.
◦ In certain circumstances, the Official Receiver or court can impose obligations that last for a longer period, known as a Bankruptcy Restrictions Order (BRO) or Bankruptcy Restrictions Undertaking (BRU).
How is an individual declared bankrupt?
◦ Bankruptcy can be initiated either by the debtor (person going bankrupt) themselves or by the debtor’s creditors
◦ Creditors or the supervisor/creditors of an individual’s failed Individual Voluntary Arrangement (IVA) can also initiate the process
Discharge from Bankruptcy
◦ Bankruptcy usually lasts 12 months, after which the individual is automatically discharged.
◦ Upon discharge, the individual is released from most debts, but certain debts, such as court fines, student loans, and secured debts, are not discharged.
Assets which are protected
houses jointly owned with another person where children live
vehicles (but note that these can be downgraded where it is a v expensive car)
clothes
furniture
Alternative debt solutions to bankruptcy
◦ A Debt Relief Order (DRO) is a less formal option for individuals with lower levels of debt and few assets.
◦ An Individual Voluntary Arrangement (IVA) is a binding agreement between the debtor and their creditors, supervised by an insolvency practitioner, allowing the debtor to pay off debts over time.
- Debt Respite Orders (Breathing Space) provide legal protection from creditor action for a period, allowing the debtor time to seek debt advice and find a solution. There are standard and mental health crisis types. Secured debts, student loans, and court fines are examples of excluded debts from the moratorium.
What are the conditions for a creditor to issue a statutory demand against a creditor
debtor is domiciled in England and Wales
debt owed is £5,000 or more
21 days have passed and the debtor has not been paid
the debt is for a liquidator (fixed sum)
the debt is unsecured / payable either immediately or at a specific date in the future
Tell me the differences between a statutory demand against an individual and company
Individual: £5,000 or more not paid in 21 days
company: 21 days more than £750
if a debt order relief is granted, how long after is the debtor excused from paying debts
freed from repaying any debts after 12 months. Note that this does not include student loans
how long does a DRO (debt relief order) last
12 months. After this period, they will be excused from paying back their debts. Note that this does not include student loans or maintenance payments.
what debts are not covered by the debt relief order
- court fines
- any obligations arising from an order made in family proceedings
- student loans, and
- secured debts.
what is the criteria for a debt relief order
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Domicile: Must be domiciled in England or Wales or have worked there in the last 3 years.
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Previous DROs: Must not have applied for a DRO in the last 6 years.
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Inability to Pay: Must be unable to pay their debts.
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Total Debts: Must owe less than £50,000 in qualifying debts.
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Assets: Must have assets of less than £2,000, excluding essential household items and work tools.
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Car Value: Must not own a car valued at £4,000 or more.
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Disposable Income: Must have a disposable income of no more than £75 per month.
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Other Insolvency: Must not be involved in another formal insolvency process (such as an IVA or bankruptcy).
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Recent Transactions: Must not have entered into a transaction at an undervalue or a preference in the previous two years.
What is Debt Respite Scheme (Breathing Space) scheme
will give someone in problem debt the right to legal protections from their creditors.
name the two types of debt respite schemes
standard breathing space
mental health crisis breathing space
how long does the standard breathing space debt respite scheme last
60 days
Mental health crisis breathing space (debt respite scheme lasts)
as long as a person’s mental health treatment plus 30 days
to apply for a debt respite scheme, a person must
- owe a qualifying debt (most debts unless excluded) to a creditor
- live or usually reside in England or Wales
- not have a DRO or an IVA nor be an undischarged bankrupt at the time they apply, and
- not already have had a standard respite order in the last 12 months at the time of the application.
list the excluded debts for debt respite scheme
- secured debts
- student loans
- court fines
- child maintenance/orders made in family court proceedings
- debts incurred through fraud/fraudulent breach of trust, and
- most tax and benefit debt
when will a home be excluded from the bankruptcy assets
- the house is in joint names with the bankrupt and someone else
- the bankrupt’s spouse/civil partner has registered a charge on the property under the
Family Law Act 1996, or - children live in the home.
delayed by a year if the spouse/children live there. 3 years to sell the home if the TIB makes an application of an order for sale
a bankrupt is discharged after a
year. which allows them to have a fresh start.
