Personal insolvency

Question 1

When is an individual insolvent?

Answer 1

• debt is payable now, and he can’t pay, or
• debt is payable in the future, and there’s no reasonable prospect he’ll be able to pay

Question 2

How can a creditor prove an individual is insolvent?

Answer 2

• serve a statutory demand for sum of at least 5,000 and wait to see if it’s paid within 3 weeks
• serve statutory demand for future liability of at least 5,000 and wait 3 weeks to see if there’s reasonable prospect of payment/asks to set it aside
• obtain court judgment for at least 5,000 and attempt to enforce it without success

Question 3

What happens upon bankruptcy?

Answer 3

D’s assets pass to the trustee in bankruptcy

Question 4

What are the 2 options for staring bankruptcy?

Answer 4

• petition by creditor
• debtor’s application

Question 5

How must the creditor’s petition be served on the debtor?

Answer 5

Personal service (or apply to court for order for substituted service)

Question 6

How can a debtor apply for bankruptcy?

Answer 6

Online

Question 7

Who acts as the trustee in bankruptcy?

Answer 7

Official Receiver

Question 8

Which assets do not pass to the trustee in bankruptcy?

Answer 8

• tools of trade
• everyday items
• salary (except if above what’s needed to cover reasonable needs- Income Payments Agreement made)

Question 9

Whose interests are paramount in respect of the bankrupt’s home?

Answer 9

After 1 year of bankruptcy, creditors’ interests are paramount, unless circumstances are exceptional

Question 10

What can the trustee in bankruptcy do to increase the bankrupt’s assets? (5 things)

Answer 10

• disclaim onerous property
• set aside preferences in last 6 months (or 2 years if connected person)
• set aside transactions at undervalue in last 5 years (if further back than 2 years, must’ve been bankrupt)
• set aside an extortionate credit transaction in the last 3 years
• set aside transaction defrauding creditors

Question 11

Distribution order of assets in bankruptcy

Answer 11

• bankruptcy costs
• preferential debts
• unsecured creditors
• postponed creditors (spouse)

Question 12

When is bankruptcy discharged and what happens?

Answer 12

Automatically after 1 year
Property vested in the trustee is not returned (except sometimes the matrimonial home)

Question 13

What is the BRO and BRU?

Answer 13

Bankruptcy Restriction Order/Undertaking:
impose restrictions on the bankrupt for 2-15 years

Question 14

What are the alternatives to bankruptcy?

Answer 14

• individual voluntary arrangement
• negotiation with creditors
• debt relief orders (DRO)
• debt respite scheme

Question 15

When is a debt relief order (DRO) available?

Answer 15

If debtor’s assets are of low value
NOT if:
- car worth 2,000 or more
- total gross assets worth over 2,000
- disposable income over 75/month
- subject to DRO in last 6 years
- total unsecured liabilities over 30,000

Question 16

How long is the DRO period, and what happens at the end?

Answer 16

12 months
Debtor discharged from almost all debt

Question 17

What are the 2 types of debt respite scheme?

Answer 17

• standard breathing space
• mental health crisis breathing space

Question 18

How long is the standard breaching space moratorium?

Answer 18

Up to 60 days

Question 19

How long is the mental health crisis breathing space?

Answer 19

The duration of treatment + 30 days

Question 20

Who can grant breathing space?

Answer 20

FCA-authorised debt advice provider

Question 21

Conditions for being granted breathing space

Answer 21

• not being able to pay debts as they fall due
• not being subject to bankruptcy/IVA/DRO
• not had breathing space in last 12 months
• debt is qualifying debt