Bankruptcy

Question 1

what is meant by the term bankruptcy

Answer 1

where a person cannot pay their debts

Question 2

can companies become bankrupt?

Answer 2

No only individuals

Question 3

what types of debt are not discharged by bankruptcy

Answer 3

damages for personal injury
money payable under maintenance or other matrimonial orders
outstanding student loans
fines and debts incurred by fraud

Question 4

what is the procedure before making a bankruptcy order

Answer 4

the petitioner has to prove the debtor is unable to pay and they are owed at least £5k in unsecured debt
a debtor can present a petition but only if they are unable to pay their debts
application submitted online to an adjudicator
Debtors inability to pay has to be proved -this can be done by showing that a debtor has not complied within 3 weeks with a statutory demand or if the petitioning creditor has sued the debtor and obtained a judgement and has tried to execute the judgement through baliff system by ale of debtors goods but has been unable to do so
not allowed to dispose of property once presentation of petition has been made unless transaction is court approved
Court can then make a bankruptcy order

Question 5

what is the procedure after bankruptcy order is made

Answer 5

Official receiver takes control of debtors property
debtor submits a statement of affairs to the OR who then decides whether they need to call a creditors meeting which will enable the creditors t appoint an insolvency practitioner of their choice as a trustee in bankruptcy
The OR must call a meeting if at least 10% of the creditors demand it
If no meeting the OR becomes trustee in bankruptcy

Question 6

What is the function of a trustee in bankruptcy

Answer 6

access realise and distribute the bankrupts estate - liquidate assets to pay the creditors

Question 7

What property does not pass to the trustee in bankruptcy

Answer 7

tools, books vehicles and other items of equipment that are necessary for bankrupts personal use in employment
clothese bedding furniture household equipment and provisions necessary to satisfy basic domestic needs
property held by bankrupt on trust for any other person

Question 8

What happens to a bankrupts home

Answer 8

if owned their interest in the property and right to sell passes to the trustee
trustee obtains a court order to sell property
trustee generally has 3 years to deal with the home
After 3 year period property reverts to former bankrupt

Question 9

What does the court need to consider when there are shared interests in the main home of a bankrupt

Answer 9

interest of creditors
needs and resources of spouse or civil partner
the needs of any resident children
whether the spouses conduct contributed to the bankruptcy

Question 10

what is the priority for payment order

Answer 10

secured creditors
expenses of bankruptcy
preferential debts e.g pension scheme contributions owed to employeed of any business of the bankrupt and up to 4 months wages (cap of £800) plus holiday pay
any creditor holding a floating charge over an asset
unsecured creditors and other debts
interest due in debts since BRO
debts to bankrupts spouse

Question 11

how is the bankruptcy order complete

Answer 11

trustee makes interim payments or one final distribution

trustee calls a final meeting of creditors to present their report and gain their release

Question 12

What are the restrictions placed on a bankrupt

Answer 12

A BANKRUPT MUST NOT
Obtain credit of more than £500 from a single lender without disclosing their bankruptcy
trade under any name except that in which they were made bankrupt by the court
Act as a director of a company or create manage or promote a company
work as an insolvency practitioner
professional disqualificatiosn - soliciotrs and barristers

Question 13

what is the effect of bankruptcy on investments

Answer 13

ownership passes to the trustee
where the investment is owned jointly the trustee and the other owner become joint owners
the trustee cannot surrender any life policies or cash in IS unit trusts or other investments
the trsutee takes over some of the bankrupts pension contracts
The trsutee can claim any payments of income to the bankrupt

Question 14

What is the effect of bankruptcy on life assurance

Answer 14

if the policy is not under trust the bankrupt loses control and the benefit of the policy passes to the trustee in bankruptcy
A policy under married womaens property act trust is protected from bankruptcy

Question 15

What is the effect of bankruptcy on pensions

Answer 15

if in receipt of a pension the income is included in the assessment
if a assets are held in a registered scheme they are protected and trustee in bankruptcy cannot claim them
A trustee in bankruptcy can apply to the court nd if the court thinks excessive pension contributions have prejudiced the creditors an order can be made for the pension provider to pay the TIB and adjust the liability appropriately

Question 16

How does the bankruptcy of a settlor affect a trust

Answer 16

can only affect the trust if it can be attacked under the prior transaction provisions
the trustees have to prove that the settlor was solvent

Question 17

How does bankruptcy affect the trustee of a trust

Answer 17

no effect on the trust

the settlor and trustees may wish to exercise any power they have to remove the trustee

Question 18

How does bankruptcy of a beneficiary effect a trust

Answer 18

the trustee in bankruptcy can claim any beneficial interest the bankrupt beneficiary has in the trust property

Question 19

What is the process of an IVA

Answer 19

debtor makes a formal proposal to the creditors to pay part or all of debts
Insolvency practitioner then needs to apply to the court to see if proposal is acceptable
if agreed a supervisor is appointed to oversee the repayments
individual and IP set out how much they intend to pay and what assets are included in funds being drawn on
if creditors are pressing for payment IP can apply to court for a grant of interim order preventing bankruptcy petition
creditors meeting is held and vote on whether scheme is acceptable - 75% of total debt is in favour then proposal is accepted
individual makes payment to IP who distributes to creditors
creditors are bound by IVA
IVA lasts 5 years (when all sums set out are paid)
if individual cannot adhere to terms IP will end by giving notice to creditor BRO may follow

Question 20

What are the advantages of an IVA

Answer 20

debtor is closely involved
restrictions of bankruptcy are avoided
debtor avoids stigma and disqualifications that follow bankruptcy
overall costs are less than bankruptcy

Question 21

what are deeds of arrangements also known as

Answer 21

informal arrangements
family arrrangements
debt management plans

Question 22

What are the conditions that need to be met for a debt relief order

Answer 22

individual is unable to pay their debts
owe no more than £20k
not own assets with a total value of more than £1k
not have disposable income of more than £50 per month
be domiciled in england or Wales
Not have been subject to another DRO in the last 6 years
not be involved in another formal insolvency procedure at the time of applying

Question 23

what is an admin order

Answer 23

if a creditor obtains a ccj the court can make an admin order as an alternative to bankruptcy
regular monthly payments are made to court which then pays creditors (admin fee is 10% maxof total debt)
debts don’t exceed £5k and is owed to at least 2 creditors
insolvent needs to be in receipt of regular income

Question 24

What are the advantages of an admin order

Answer 24

One payment to the court
based on the amount individual can afford
creditors cannot take action without asking court first

Question 25

What are the disadvantages of an admin order

Answer 25

the arrangement fails if 1 missed payment
an admin order is registered in CCJ register which affects credit rating
order can only be applied if debt is less than £5k

Question 26

What happens to a bankrupts income

Answer 26

TIb can ask for bankrupt to sign an income payment agreement
TIb can apply to court for an income payments order
Means the bankrupt can contribute to their debt from income

Question 27

How long must the TIB wait if the bankrupt has minor children before selling the home

Answer 27

1 year

Question 28

How long does the TIB have to deal with the family home

Answer 28

3 years

Question 29

How can the TIB stop the automatic reversion of the family home

Answer 29

Realise the interest
Apply for an order of sale or possession
Apply for a charging order
Enter agreement with bankrupt

Question 30

What is the priority order for the trustee in bankruptcy to repay creditors

Answer 30

Secured creditors
Expenses of bankruptcy
Preferential debts
Any creditors with a floating charge
Unsecured creditors and other debts
Interest due on debts since bankruptcy
Debts to spouse

Question 31

What are considered to be preferential debts

Answer 31

Pension scheme contributions
Remuneration for employees up to 4 months £800 max
Holiday pay

Question 32

What can a undischatged bankrupt not do

Answer 32

Obtain credit for more than £500
Trade under any name except that in which they were made bankrupt
Act as a director
Work as an insolvency practitioner

Question 33

What is the effect of bankruptcy on a pensions

Answer 33

Pension income is included in assessment
Fund value of registered scheme is protected
A bankrupt can be compelled to draw income
Excessive contributions can be overturned

Question 34

How does bankruptcy impact a trust

Answer 34

Court can set aside trust if settlor transferred assets to conceal them
An set aside if transferred to trust if petition presented within 2 years of transfer

If assets are transferred to a connected person as beneficiary (spouse relative, spouse of relative or business partner) apply to set aside within 5 years

Question 35

How long can a bankruptcy restriction order last

Answer 35

2 - 15 years

Question 36

Why would a court issue a bankruptcy restriction order

Answer 36

If bankrupt acts dishonestly