Learning Material Sample
Trusts6. BankruptcyChapter learning outcome: To understand the rules relating to bankruptcy and the role of the trustee in bankruptcy
In this chapter, we consider the laws relating to bankruptcy and their practical application, its alte...
Shortened demo course. See details at foot of page. ...kruptcy applies to individuals, whereas the term ‘insolvency’ applies to corporate bodies. Bankruptcy procedures start when a creditor or creditors (or the debtor themselves) petition the court for a bankruptcy order. The court will not entertain a petition where the debtor owes less than £5,000 in unsecured debt. The court will need to have proof that the debtor cannot pay the debt or has little prospect of doing so. This can be demonst...
Shortened demo course. See details at foot of page. ... from trading under any name other than the one in which they were adjudged bankruptThey are prohibited from acting as a receiver of a company’s property on behalf of a debenture holder They are disqualified from acting as an insolvency practitioner They are disqualified from being elected to, sitting or voting in, the House of Commons In this section, we consider which property belonging to a bankrupt is taken away by the trustee to be sold and what the bankrupt is allowed to retain.
All property owned by the debtor at the date of the bankruptcy order, or subsequently acquired (e.g. through inheritance), will pass to the trustee in bankruptcy. The debtor is allowed to keep some items, which include: The tools of his/her trade A vehicle if needed for his/her employment Clothing, bedding and furniture belonging to the debtor and his/her family Property held by the bankrupt on trust for anyone else The trustee is entitled to receive the ... Shortened demo course. See details at foot of page. ...ce of the home and so is entitled to some of the equity but is not on the title deeds, the trustee cannot realise this interest.When banks and other lenders lend money on the security of the matrimonial home, they are usually very careful to enquire about any present or future interest in the property, and may require that any interested parties formally postpose their interest in favour of the lender. The lender may also insist the mortgage is in joint names, giving them the opportunity to pursue the other borrower in the event of default (as both borrowers will be jointly and severally liable for the mortgage debt). In this section, we consider the role of the trustee in bankruptcy in more detail.
Priority for payment The trustee’s function is to realise the bankrupt’s assets and distribute the proceeds to relevant creditors as soon as possible, in line with the Insolvency Act 1986. The trustee will ultimately convert the bankrupt’s assets into cash... Shortened demo course. See details at foot of page. ...a limited company becomes insolvent, the directors are not liable – they have limited liability – they are protected by the ‘veil of corporation’.When the administration of the bankruptcy is finished, the trustee calls a final meeting of creditors to present their report and gain their release. The bankruptcy procedure is then complete. While a person is bankrupt, they cannot deal with their property as it belongs to the trustee. The bankrupt must:
Disclose all their property ... Shortened demo course. See details at foot of page. ...ibited by law (and if not by the law, by their professional bodies) from continuing to practice while bankrupt, such a solicitors and barristers. Some transactions entered into by an individual prior to being made bankrupt can be ‘attacked’ by the trustee.
In these situations, it is possible for the courts to order that the property involved in the transactions is transferred to the trustee to be used to repay creditors... Shortened demo course. See details at foot of page. ...tcy cannot recover the interests of the spouse/civil partner and children, even if the policy was started with the intent to defraud creditors. The trustee could, however, have a claim on the premiums paid by the bankrupt if the policy was effected with the intention of defrauding creditors. In this section, we consider the effect of bankruptcy on investments, pensions and trusts.
Bankruptcy and investments On bankruptcy, ownership of the bankrupt’s investments passes to the trustee in bankruptcy. Investments stay under the ownership of the trustee after the bankrupt is discharged. This will be the case whether the individual declares the investment to the trustee in bankruptcy or not. If the investment was jointly owned between the bankrupt and another person, it becomes jointly owned by the trustee and the other person. The trustee can, therefore, encash life policies and other investments such as OEICs, unit trusts, investment trusts, etc. The trustee can even claim income payments from investments suc... Shortened demo course. See details at foot of page. ...curity for repayment of the debt. Where the asset is of a higher value than the outstanding loan, the lender will not have to take part in bankruptcy proceedings. However, where the value of the asset is less, it will. In these situations, they will be in a better position in terms of pecking order than ordinary unsecured creditors.The options available to the secured lender are: Value the security and participate in bankruptcy proceedings for the unsecured part of the debt Relinquish security for the benefit of all creditors and take part in the bankruptcy proceedings for the whole debt Realise the security and take part in the bankruptcy proceedings for the rest of the debt. This course of action is the most common Bankrupts are automatically discharged one year after the bankruptcy order was made – there is no formal application or hearing, it just happens on the one-year annive...
Shortened demo course. See details at foot of page. ...ee at the time of discharge remains the property of the trustee and is not returned to the former bankrupt (an exemption to this is the three-year rule for the family home). A court may order Bankruptcy Restriction Orders (BROs) if the individual has acted dishonestly or in a blameworthy way. The order can last between two and 15 year...
Shortened demo course. See details at foot of page. ...bankrupt agrees to manage their finances within certain restrictions for the duration of the BRU (which has the same minimum and maximum periods as a BRO). We have created this audiovisual presentation to help you understand this topic.
Individual voluntary arrangements Instead of bankruptcy, a debtor may (with the agreement of his/her creditors) make an ‘individual voluntary arrangement’ (IVA), whereby creditors may accept receiving less than the full debt owed to them and/or receive repayments over a longer timescale. The debtor applies to the court for the grant of an interim order preventing the processing of a bankruptcy petition. This gives the debtor time for an insolvency practitioner to work out proposals for part payment of creditors. A creditors’ meeting then takes place and the creditors vote whether to accept the proposals. ... Shortened demo course. See details at foot of page. ...ions, their net disposable income must be no more than £75 per monthThey must be living in England or Wales, or at some time in the preceding three years have been living or carrying on a business in England or Wales They must not have been subject to another DRO within the last six years They must not be involved in any other formal insolvency procedure at the time they apply for the DRO The DRO means the individual cannot: - Borrow more than £500 without telling the lender about the DRO - Act as a company director - Create, manage or promote a company without the court’s permission - Manage a business without telling those they are in business with about the DRO In this section, we consider the effects of bankruptcy on tax planning arrangements that have or are planned to take place.
Bankruptcy should not be considered as a tax planning tool. Concealing assets for these purposes i... Shortened demo course. See details at foot of page. ...y a tax liability. Any life cover would often need to be replaced following dischargeThe trustee in bankruptcy may have claimed some pension benefits (where able to). These would have to be replaced following discharge In this section, we consider the effect of trust policies and bankruptcy.
MWPA trusts Trust policies are not the property of a bankrupt individual and are unaffected by the bankruptcy. A policy in trust under the Married W... Shortened demo course. See details at foot of page. ...tcy, it cannot be attacked unless the bankrupt was insolvent at the time of the trust or became so as a result. The bankrupt will be presumed insolvent at the time if the trust was for the benefit of a relative or business partner. |
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