Bankruptcy Flashcards
What is insolvency?
Debts exceed assets + can’t/wont pay their debts
How can creditors or individuals resolve insolvency?
A bankruptcy order from Court
What happens to assets if bankrupt order is made?
Assets are held in trust by the Trustee in Bankruptcy for the benefit of creditors, this includes any future property obtained by the bankrupt, until they are discharged, including inheritances.
What is the for four step process for obtaining a bankruptcy order?
(1) Any creditor owed at least £5k unsecured apply to court (known as a petition)
(2) Court declares a bankruptcy order against the debtor.
(3) Official Receiver takes control of the assets
(4) Creditor’s appoint an Insolvency Practitioner as a Trustee in Bankruptcy
* Assets taken by official Receiver if no Trustee appointed
What assets are not taken on bankruptcy?
(1) Equipment need for employment
(2) Items for families basic domestic needs
(3) Property held on trust for someone else
What is an income payment order?
When a bankrupt is required to pay some of his income to the Trustee, this can include pension income.
What is the “normal” period of bankruptcy, and when can it be extended?
12 months
Can be extended if not all assets were declared or was an undeclared bankrupt in the past.
When can a Bankruptcy Restrictions Order (lasting 2-15 years) be imposed by the courts?
If acted dishonestly/irresponsibly before or after bankruptcy.
How are homes treated for bankruptcy, what conditions apply if family is living there and how can it be resolved?
(1) Bankrupt’s share is include in the estate, so may be sold to repay the debts.
(2) If family living with him trustee has 3 years to resolve to prevent unreasonable forced sale.
(3) Resolved by Sale/Possession/Family Buy Out /Trustee Legal Charge)
What is the (6) creditor repayment priority order for bankruptcy ? *Pay all in each class before moving onto the rest, if only 50% can be covered each gets 50% of what they are owed.
(1) Secured Debts
(2) Bankruptcy Fees
(3) Preferential debt (4 months wages/pension for employees)
(4) Other including Tax
(5) Interest owed
(6) Spouse
Name two things a bankrupt must do and two they must not.
(1) Must disclose all assets
(2) Must disclose bankruptcy when applying for credit
(3) Must not hide debts or assets
(4) Must not take property out of the country
When can a trustee’s “attack” assets sold prior to bankruptcy (Known as Prior Transactions)
Assets transferred below true value up to 2 years before in preparation for bankruptcy.
What is the impact of bankruptcy on Pensions, Investments and Trusts ?
(1) Share of Investments become property of the trustee with power to encash.
(2) No claim on registered pension schemes and cannot insist an income is taken but can apply income payment order if pension already being paid
and recover excessive pension contributions that were made to deprive creditors
(5) If bankrupt is the settlor of a trust, trust property is out of reach, unless set up to avoid creditor claims.
What happens to a financial decision LPA on bankruptcy
Revoked
Can a bankrupt continue to act as a trustee?
Yes, but not for a charity.
