Bankruptcy Flashcards
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
Sell it
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?
Yes
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
