Bankruptcy

Question 1

When are you bankrupt

Answer 1

creditor must show that the person owes at least £5k of unsecured debts

• person hasn’t responded within 3 weeks of a statutory demand
• bankruptcy submitted online

Question 2

What happens next after a bankruptcy order is accepted

Answer 2

official receiver takes control of persons assets

-trustee in bankruptcy is appointed and they have to pay the creditors debts

Question 3

What assets can’t be apart of the bankruptcy order?

Answer 3

items they use for their business/employment

• basic domestic items e.g. furniture, bedding
• stuff that’s in trust for something else

Question 4

What is a income payment agreement / income payments order

Answer 4

both of these require that the bankrupt person uses their regular income to pay off the debts
-don’t last longer than 3 years

Question 5

What happens to the Family home when bankrupt

Answer 5

can’t be sold without court order if minors live in house

• court has to consider all interests so unlikely to instruct a sale
• must be done within 3 years

Question 6

What is the Priority for payment for bankruptcy

Answer 6

Priority for payment
Secured creditors have a legal charge over their secured debts and are dealt with first, for example if a mortgage is secured on a property. If there are any funds left over after the secured debts have been settled, they are then paid out in the following order:
1. The expenses of bankruptcy, in other words, the fees and costs of the trustee in bankruptcy and the OR.
2. Preferential debts:
a. pension scheme contributions owed to the employees of any business of the bankrupt; and
b. remuneration owed to each employee for up to four months’ wages (which are subject to a cap of £800; amounts above that are unsecured debts) plus holiday pay (which is not subject to the £800 cap).
3. Any creditor holding a floating charge over an asset, such as a debenture.
4. Unsecured creditors and other debts, except to the bankrupt’s spouse or civil partner. These include tax, value added tax (VAT) and National Insurance (NI) (which are no longer preferential debts).
5. Interest due on all debts since the BRO.
6. Debts to the bankrupt’s spouse or civil partner.

Question 7

How long does bankruptcy last?

Answer 7

Normally a year but can be discharged earlier or extended

Question 8

What does an official receiver do?

Answer 8

The official receiver’s role in your bankruptcy includes the following:

• taking control of some of your property
• assessing whether you can afford to make any payments towards your debts
  -investigating your conduct and financial affairs before and during the bankruptcy, which may include asking you to attend an interview, complete a questionnaire or attend a public examination
• advertising your bankruptcy in the London Gazette
  informing your creditors of your bankruptcy, which may include arranging a meeting of all the creditors that you must attend
• in some cases, acting as the trustee of your bankruptcy, responsible for distributing your property and money between your creditors.

Question 9

What happens if a settlor under a trust is bankrupt

Answer 9

trusts are normally kept separate unless they can prove that the trusts were set up deliberately to hide assets

-if trust set up more than 5 years ago unlikely to succeed

Question 10

What happens if a trustee on a trust is bankrupt

Answer 10

doesn’t matter but other trustees may want to kick them out

-can’t be trustee of a charity trust

Question 11

What happens if a beneficiary of a trust becomes bankrupt

Answer 11

doesn’t really matter but the trustee in bankruptcy can keep the beneficiary interest

Question 12

Explain the rules of being discharged from bankruptcy

Answer 12

The effect of discharge from bankruptcy, or the annulment of a BRO or BRU or its termination, is that the former bankrupt is free of debts, even if these have not been paid in full. However, the following liabilities are not discharged and remain payable:
• damages awarded against the bankrupt for personal injury caused by negligence;
• money payable under maintenance and other matrimonial orders;
• outstanding student loans; and
• fines and debts incurred through fraud.

Question 13

What is a bankruptcy restriction order (BRO)

Answer 13

court may order a BRO if the bankrupt has acted dishonestly or in a blameworthy fashion. The order can last for a minimum period of two years and a maximum of fifteen years.
BROs and BRUs extend the consequences of a bankruptcy, in effect preventing it from being discharged. They also apply other restrictions; for example, someone subject to a BRO cannot be a local councillor, a school governor or hold many other public posts.

Question 14

When a BRO must be made?

Answer 14

within 1 year of the bankruptcy order

Question 15

What is an individual voluntary agreement?

Answer 15

alternative to bankruptcy

• formal agreement to pay back debts
• if person still doesn’t pay back debts the creditors can apply for bankruptcy
• legally binding
• usually lasts 5 years and will end once debts have been paid off

Question 16

advantages of an IVA are:

Answer 16

The debtor is closely involved in the process.
• The restrictions of bankruptcy are avoided.
• The debtor avoids the stigma and disqualifications that follow bankruptcy.
• The overall costs are usually less than a formal bankruptcy.

Question 17

What is a deed of arrangement

Answer 17

• person can contact creditor with an agreement to pay money back after living expenses which they might agree to
• -can be set up cheaply and easily
• Good solution to short term problem
• not legally binding and creditors could ignore it

Question 18

What is a debt relief order?

Answer 18

suitable for people on low income with few assets

• managed by insolvency service
• lasts for 12 months, creditors cannot take any money and if they are in the same position at the end they don’t owe any money
• must owe less than £20k
• not have assets over £1k
• not have more than £50 in disposable income
• not subject to another DRO in past 6 years

Question 19

What is an administration order?

Answer 19

person must make monthly payments to court and court charge an admin fee (could be 10%)

• debt under £5k and money owed to 2 creditors
• person has to have monthly salary
• if person doesn’t keep up schedule they could be bankrupt

Question 20

What are the advantages and disadvantages of an administration order

Answer 20

The advantages of an administration order are:
• There is only one monthly payment to the court.
• The payment is based on the amount that the individual can afford.
• Once the order is in place, the creditors cannot take any action without first asking the court.

The disadvantages of an administration order are:
• If the individual misses a payment, the arrangement may fail.
• An administration order is registered in the Register of County Court Judgements, which will affect the individual’s credit rating.
• An order can only be applied for if the debt owed is less than £5,000 and there is a county court judgement.