Bankruptcy

Question 1

Conditions where a creditor can have some one declared bankrupt?

Answer 1

Creditors must show they are owed at least £5,000 or a share of debts that total £5,000 in unsecured debt.

Creditors have to prove debtor is unable to pay their debts, to p rove this they have to prove they have not complied to statutory demand or administrator order, within 3 weeks

Breaking the term o f the IVA.

Question 2

Role of the official receiver?

Answer 2

The official receiver takes control of the debtor’s property.

Debtor submits a statement of affairs to the official receiver

Official receiver decides whether to call a meeting of creditors in order to appoint a trustee in bankruptcy

The official receiver must call a meeting if at least 10 % of creditors of value demand it

If no meeting is held, the official receiver becomes the trustee in Bankruptcy.

Question 3

What happens when someone is made Bankrupt?

Answer 3

All assets owned by the debtors are passed to the trustee in bankruptcy, except for tools, vehicles and equipment necessary for employment, clothing, bedding and household equipment.

Property acquired by the debtor since the bankruptcy order.

Question 4

Bankruptcy procedure?

Answer 4

●Debtor (or creditor) owed £5,000+ applies to court for bankruptcy order
●If court agrees, debtor adjudged bankrupt
●Most of debtor’s assets pass to Official Receiver
●A meeting of creditors appoints a trustee who takes ownership of bankrupt’s assets. Official receiver acts if no other trustee appointed.
●Trustee sells bankrupt’s property & uses proceeds to repay creditors

Question 5

Priority of payments?

Answer 5

Secured creditors with a legal charge over secured debts are paid first. If any residue:

1. Bankruptcy expenses/fees
2. Preferential debts, including:
   - Employees’ pay, including holiday pay > 4 months.
   - Pension scheme contributions
3. Any creditor holding a floating charge over an asset - e.g. debenture
4. Other debts, e.g. Unsecured Creditors, NI and VAT
5. Interest on debts since bankruptcy
6. Debts to spouse/civil partner.

Question 6

IVA individual voluntary arrangement

Answer 6

‘A low cost informal arrangement made by the debtor who agrees to repay some (or all) of their debts’

Advantages:
•Usually cheaper than formal bankruptcy
•Restrictions of bankruptcy are avoided
•Debtor has more control

Question 7

Trust assets in bankruptcy

Answer 7

Non-Statutory Trusts
Trust can be put aside if trust was set up within
FIVE years :
●Within 2 years - will always be challenged
●Between 2 and 5 years - challenged only if either insolvent at the time or trust made them insolvent

Statutory Trust
●Assets safe (except bankrupt’s beneficial interest)
●Even if set up to defraud creditors, only premiums paid may be claimed by trustee-in-bankruptcy