BLP - Week 10 Personal Insolvency Flashcards
What is an IVA?
- An IVA allows a debtor to propose a plan to pay part of their debt or extend repayment timelines.
- Requires a licensed insolvency practitioner as the IVA supervisor.
- Usually lasts 3-5 years.
How is an IVA set up?
- Debtor drafts a proposal & statement of their financial affairs.
- Nominee (Insolvency Practitioner) reviews and submits a report to court.
- Moratorium (14 days) can be requested to pause bankruptcy proceedings.
- Creditors vote – 75% (by debt value) must approve.
What is the effect of IVA approval?
- Binds all unsecured creditors (not secured unless they consent).
- Supervisor ensures implementation.
- If the debtor completes the IVA, remaining debts are written off.
What are the pros of an IVA?
- Avoids bankruptcy and its restrictions. - - Creditors get some repayment rather than nothing.
- Moratorium available (if interim order is granted).
What are the cons of an IVA?
- Lasts longer than bankruptcy.
- Does not bind secured creditors without consent.
- Costly and time-consuming process.
Who can file for bankruptcy?
- Creditor (if debtor owes over £5,000 and cannot pay).
- Debtor (voluntary declaration of inability to pay).
What are the grounds for bankruptcy?
- Statutory Demand (unpaid after 3 weeks).
- Court Judgment remains unpaid.
What are the consequences of bankruptcy?
- Trustee appointed to manage assets.
- Debtor restrictions include:
- cannot act as a company director,
- cannot borrow over £500 without disclosure,
- assets (except essentials) vest in Trustee.
What is the discharge period from bankruptcy?
- Usually after 1 year.
- Early discharge possible if investigation is completed.
- Non-compliance can extend bankruptcy.
What is the role of the Trustee in Bankruptcy?
- Sells bankrupt’s assets to pay creditors. - Distributes funds based on priority.
- Can disclaim onerous property (e.g., unwanted leases).
What is the order of priority of payments in bankruptcy?
- Secured creditors
- Bankruptcy expenses & Trustee fees 3. Preferential creditors
- Ordinary unsecured creditors
- Statutory interest on unpaid debts
- Debts owed to a spouse
- Remaining funds to bankrupt (if any).
What are voidable transactions in bankruptcy?
Certain transactions before bankruptcy can be challenged & reversed.
What are Transactions at an Undervalue (TUV) under s.339 IA 1986?
- A bankrupt gives away assets or sells them for less than fair value.
- Can be challenged if within 5 years before bankruptcy.
- If between 2-5 years, insolvency must be proven (unless to an associate).
What are preferences under s.340 IA 1986?
- Giving priority to a creditor before bankruptcy.
- Challengeable if within 6 months (or 2 years if to an associate) and bankrupt influenced by desire to prefer the creditor.
What are Transactions Defrauding Creditors under s.423 IA 1986?
- Moving assets to put them out of reach of creditors.
- No time limit – can be challenged at any time.
- Intent to defraud must be proven.
What is a Bankruptcy Restriction Order (BRO)?
- Court-imposed restrictions for misconduct in bankruptcy.
- Lasts 2-15 years.
What are examples of misconduct leading to a BRO?
- Hiding assets from the Trustee
- Excessive spending before bankruptcy 3. Taking on new debts knowing insolvency is likely.
What are the consequences of a BRO?
- Cannot be a director or run a business. - Must disclose BRO when borrowing over £500.
- Criminal offence if breached.
