Personal Insolvency Flashcards
What is an individual voluntary agreement?
The debtor proposes that they only pay part of the debt owed or repay over a longer term. They will pay from their income and assets to the IVA supervisor who will pay a dividend to creditors.
What is the procedure for an IVA?
- Debtor drafts IVA proposal
- Supervisor considers it and reports to the court on whether there is a reasonable prospect of implementation
- Proposal becomes binding if approved by 75% of creditors and less than 50% of them are associated.
What is the effect of the IVA moratorium?
Debtor can apply for this, it lasts for 14 days with the option for the court to extend it. Creditors can only exercise their rights with court permission.
What is the effect of an IVA?
- Binds debtor and unsecured creditors
- Binds preferential and secured creditors who consent to it
- If debtor fails to comply, supervisor may petition the court for bankruptcy
- If debtor complies, creditors must write off balance of debt.
What is bankruptcy?
The equivalent of liquidation. Either the debtor themselves or a creditor may apply.
The debtor must be insolvent, ie:
1) Be unable to pay debts or have no reasonable prospect of paying, meaning that either they have not paid a judgment debt or that they have not paid a statutory demand of over £5000 in 21 days or that a debt to a creditor for an unsecured liquidated sum of £5000 is due.
What is the procedure for a creditor’s bankruptcy application
Apply to court and show:
1) Debtor cannot pay judgment creditor
2) Debtor failed to comply with statutory demand for £5000
3) Debtor failed to pay unsecured liquidated sum of £5000
Official receiver will become first trustee in bankruptcy and bankrupt’s estate automatically vests in them. Creditors must prove their claim and trustee must be given sufficient information.
What powers does a trustee in bankruptcy have?
- sell assets or grant security
- carry on the running of a business
What effect does bankruptcy have?
1) Automatically vests estate in trustee except reasonable domestic needs (i.e bed, clothing)
2) Prohibited from acting as director, managing company, obtaining credit over £500 without disclosure, giving gifts.
3) Non-compliance is a criminal offence and automatic discharge may be suspended.
What is a bankruptcy discharge?
Automatically discharged from bankruptcy after 1 year. May be discharged before this or trustee files notice stating no investigation required. OR trustee may apply for order suspending this if bankrupt fails to comply with bankruptcy order.
What are bankruptcy restrictions and undertakings?
Trustee must apply within 1 year of the bankruptcy and these can apply for 2-15 years: director disqualification, restriction on credit. Breach is a criminal offence.
What is the order of priority for creditors?
1) Secured creditors
2) Expenses of bankruptcy (incl trustees pay)
3) Preferential creditors (employees, PAYE)
4) Unsecured creditors
5) Statutory interest
6) Debts owed to spouse
7) Surplus to bankrupt person
Which transactions may be avoided by the trustee?
1) TUVs
2) Preferences
3) TUV with intention to defraud creditors
When can a TUV be avoided?
TUV / in consideration of marriage taking place within 5 years before petition.
* Must be proved individual insolvent at time of transaction if made over 2 years before petition.
* Insolvency presumed where transaction with associate
When can a preference be avoided?
For unconnected persons, within 6 mths before petition. For connected persons, 2 years before petition.
* Insolvent at time of preference or became insolvent as result
* Individual influenced by desire to prefer the creditor
* Presumed influenced if preference given to associate.
TUVs defrauding creditors?
No time limit or need to prove insolvency.
