Module 7 - Bankruptcy

Question 1

When can bankruptcy be used

Answer 1

When an individual can’t or won’t pay their debts
Can petition for own bankruptcy online when creditors are harassing
Creditors can petition court for bankruptcy
– must be owed a minimum of £5000 either alone or with others
If petition excepted a bankruptcy order is issued

Question 2

Process of bankruptcy (.05)

Answer 2

Bankruptcy order issued
Official receiver takes control of debtors property
Debtor submits a statement of affairs to the official receiver who then decides whether it is necessary to call a creditors meeting who may appoint an insolvency practitioner to act as trustee in bankruptcy
If no creditors meeting is called the official receiver will act as trustee in bankruptcy
The trustee in bankruptcy will access realise the debtors of the assets and distribute them to the creditors

Question 3

What property is protected from the TIB

Answer 3

Tools books vehicles and other items necessary for use in their work
Clothing bedding furniture household equipment and provisions necessary for basic domestic needs of the bankrupt and their family
Property held in trust by the bankrupt on behalf of another person
Income required for essential expenses

Question 4

What happens to the home of a bankrupt

Answer 4

If living alone the interest in the home passes to the TIB
If shared interest – cannot be sold without a court order
If appropriate the sale of the family home must take place within three years

Question 5

Order of preference for debtors (.06)

Answer 5

Secured debtors
Expenses of the bankruptcy
Preferential dates – pension scheme contributions, remuneration for each employee for up to 4 months wages (£800 cash) and holiday pay (no)
Creditors holding a floating charge over an asset
Unsecured creditor is and other debts excepted spouse e.g. tax VAT National Insurance et cetera
Interest due on debts since the bankruptcy order
Debts to bankrupt spouse

Question 6

What is the impact of a bankruptcy order on the bankrupt I.e What’s can’t they do (5)

Answer 6

Get credit of £500 or more without telling the lender about their bankruptcy
Act as a director or get involved with setting up promoting all running a company without permission from the court
Carry out a business in a different name from the one under which they were made bankrupt without telling everyone they do business with the name and which they were made bankrupt
Act as an insolvency practitioner
Normally lasts for 12 months unless a bankruptcy restriction order is issued in which case can be extended for between 2 to 15 years

Question 7

Explain the features of an IVA

Answer 7

Letter finds an insolvency practitioner (nominee)
Nominee a completes fact find to establish the full information
Nomine calculates the amount of income that should be available to repay debts and also assets that would be availablep
Debtor and nominee draft a proposal for payment to the creditors
Debtor makes the monthly payment to the insolvency practitioner including their fee
It is possible that the insolvency practitioner could apply for an interim order if creditors are threatening action during the proceedings
IP arrange meeting of creditors and also write to creditors with details of the offering
If 75% of the creditors by value agree then or are bound by it
The creditors would approve the appointment of the IP as the supervisor
Normally last for five years

Question 8

What are Debt Relief Orders

Answer 8

Introduced April 2009
Suitable for people with us it’s worth less than £1000 and qualifying debts of Leston £20,000
They last for a year during which time creditors cannot take any action to recover their money
At the end of the year if nothing else has changed the date is free from that

Question 9

What are the qualifying conditions for debt relief orders (5)

Answer 9

Debtor Kanona car to the value of £1000, or other assets must be worth less than £1000
That I can have a disposable income of no more than £50 per month after tax and I and household expenses
Must live in England or Wales or have been living or carrying on business in England or Wales at some point in the lab past three years
Must not be involved in any other type of formal insolvency proceedings
Must not have been subject to another DRO in the past six years

Question 10

How do Administration orders work

Answer 10

Must be under£5k and cc’d
Apply to the court where total debts do not exceed £5000
The debtor needs to have two or more creditors
The court will make an order based on what the debtor can afford and state how much should be paid each month – often the debtor must go on paying until debts are cleared in full although some may request a percentage
The order my also state the amount the debtor repays each month must be reviewed from time to time
The debtor makes monthly payments to the court and the court distributes money to the creditors align the court charges for the service which may be up to 10% of the total debt. The court takes a percentage of the coffee every time it pays a shared to the creditors

Question 11

Prior transactions – transactions under value. Circumstances?

Answer 11

Five years prior to BO,TIBCan I ask Cork to set transaction aside if the debtor was in solve it at the time/became insolvent as a result
Two years prior can ask Cork to set aside in any event

Question 12

Prior transactions preferences.As you know this is where one creditor is treated more favourably than another and there has been voluntary action by the debtor (not a preference if Dan and affect of bankruptcy
What are their time limits

Answer 12

TIB can I ask court to set aside preference made six months prior to bankruptcy or two years if recipient is an associate
– trustee must prove debtor insolvent at time or became so
– if recipient is an associate preference is assumed anaesthetic and prove otherwise
– spell civil partners relatives et cetera are examples of associates

Question 13

What can’t the bankrupt do (in addition to disclose in all their assets to the TIB which is a requirement)

Answer 13

Hi debts assets from TIB
Destroy stroke. I records
Make a full statements to TIB
So assets to do fraud creditors
Give preference for it later one credit to over another
Leave UK
Take assets outside of the UK

Question 14

Name some restrictions of a bankrupt

Answer 14

Getting credit of £500 or more from a single lender without telling the lender about the bankruptcy
Act as a director or get involved with a company without permission from the court
Carrying out a business in a different name without telling everyone they do business with the name under which they were made bankrupt
Act as an insolvency practitioner

Question 15

What property can be kept during bankruptcy (3)

Answer 15

Property use personally for work/2/vehicles
Basic household items for the Bancroft family
Property held by bankrupt on trust for others

Question 16

What is the process for returning property to a bankrupt

Answer 16

Does not automatically revert to bankrupt on discharge

Only reverts to bankrupt when the TIB assigns it back

Question 17

What are the duties and responsibilities of the official receiver

Answer 17

The OR has a duty to investigate the bankrupts affairs
Send a report to creditors
Take control of the bankrupt estate
Protect the bankrupt assets
Decide if it’s necessary to call a meeting of creditors or 10% of creditors by value could demand it
And enable creditors to appoint an insolvency practitioner of their choice as the TIB
If I meeting of creditors is not called the OR becomes the TIB

Question 18

What are the duties and responsibilities of the Trustee in bankruptcy

Answer 18

The TIB takes possession of the bankrupts assets

Shares monies out between creditors according to a sept priority order

Question 19

ESQ

Explain the procedure that Lenny would have followed to ensure the power-of-attorney was valid at the outset

Answer 19

Execute a deed of ordinary power-of-attorney
Deeds should detail toms powers (attorney)
Deed should have been signed by Lenny
Lenny’s signature should have been witnessed

Question 20

ESQ

State five circumstances in which Lennies ordinary power-of-attorney will cease to have effect (six answers actually)

Answer 20

If Lenny revokes it
If Lenny loses capacity
If Lenny dies
If Lenny adjudged bankrupt
At the end of its term/when specific act it was set up for is done
If Tom as sole attorney dies

Question 21

Explain the process involved in setting up a lasting power-of-attorney for Mary

Answer 21

Apply online using prescribed form
Sign to say donor and attorney have read prescribed information and understand the duties
Certificate signed by prescribed person stating the donor understands effect of creating LPA and is doing so at their own free well and there is no fraud
Signatures witnessed by an independent person

Question 22

ESQ

State the limitations placed by the LPA in relation to making gifts of Mary’s property

Answer 22

Animate gifts on customer occasions (birthdays weddings family events) today is related to/connected with Mary or to a charity Mary either previously made gifts to all might have been expected to donate to

Size of gift must be reasonable in relation to the size of Mary‘s estate and circumstances
LPA may restrict gifts but cannot make them wider than this

Question 23

Explain the process for getting an IV a put in place for Tom including how it would operate and the implications of Tom not keeping up with payments

Answer 23

Tom makes formal proposal to creditors to pay all or part of debts
If Thomas creditors agree a supervisor (and authorise insolvency practitioner) is appointed to oversee the repayments
Tom and supervisor set out plan for how much will be repaid and what assets are included
Tom can apply to court is for a grant of an interim order to prevent creditors applying for bankruptcy order whilst I VA being sorted
Creditors meeting held where supervisor sets out proposed repayment schedule and the creditors agree with it or not
– if Credit is representing at least 75% of the debt agree then all creditors are bound to the agreement
– if creditors do not agree they can apply for BO
Supervisor makes payments to creditors as per agreed schedule
Once all sums paid IVA ends
IV are usually last five years
If IVI fails supervisor gives notice to creditors and applies to court for a BO

Question 24

ESQ

Explain the advantages of putting an IVA in place for Tom

Answer 24

Tom would closely be involved in the process
Tom would avoid bankruptcy restrictions
Tom would avoid the stigma/disqualifications of bankruptcy
Tom would incur lower costs

Question 25

ESK

If Tom is declared bankrupt how will This affects a policy not written under trust

Answer 25

Tom would lose control of the policy, the benefit of the policy will pass to the trustee in bankruptcy
The trustee is likely to stop paying the premiums
The trustee can surrender the policy if it has any value
Any benefit from the surrender value must be used to benefit toms creditors

Question 26

If Thomas declared bankrupt how will this affect a policy written under the married women’s property act (1882)

Answer 26

Policy protected
Even if the trustee can prove Tom took it out to defraud potential creditors
If that is the case all the OR/TIB can do is reclaim premiums paid
TIB can stop payment of further premiums
TIB can reclaim premium is already paid

Question 27

If Tom has a bankruptcy order issued against him how will this affect his ability to run a business (four)

Answer 27

Tom won’t be able to borrow more than £500 from a single lender without telling the lender he is bankrupt
He will not be able to act as a director of his own company
He will not be able to create manage or promote a new company without the courts permission
He would not be able to trade under a different name without telling people he does business with that he is bankrupt

Question 28

Explain BRO and BRU

Answer 28

A bankruptcy restriction order is imposed on the bankrupt
A bankruptcy restriction undertaking is agreed to buy the bankrupt

Both would occur if it would appear that the bankrupt has been culpable in some manner and can extend proceedings to between two and 15 years

Question 29

What would be the effects on Jessica of being discharged from bankruptcy

Answer 29

Like this to be in 12 months unless there is a reason to criticise the contact either before or after the bankruptcy
She would be free of debt even if they had not been paid off in full
Jessica would still be liable for her outstanding student loans which are not discharge to win the bankruptcy ends
She would be allowed to retain any property she acquires during the bankruptcy
Restrictions on her applied during the bankruptcy would no longer apply assuming she had not been subject to an BRO or made a BRU are you

Question 30

Advantages of IVA

Answer 30

Keeps the individual involved in the process and they can decide what assets to include

Cheaper than