In this chapter, we consider the laws relating to bankruptcy and their practical application, its alternatives and the effect of bankr...
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...er who is unable to pay their debts, including business-related liabilities, they may be made bankrupt and lose their personal assets.
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 ac...
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...ntributions to be taken directly from wages to the bankrupt’s estate. The IPA/IPO can be amended if the bankrupt’s income increases or decreases, and failure to adhere to its terms could prevent automatic discharge from bankruptcy.
In this section, we consider the role of the trustee in bankruptcy in more detail.
The trustee will try to convert as many of the available assets as possible into cash with the aim of paying all ...
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...o;.
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.
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...
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...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 life policies
Life policies that are not in trust pass to the trustee in bankruptcy. Those in trust are unlikely to be affected by the bankruptcy, and policy under a Married Women’s Property Act 1882 trust (MWPA) is protected from a trustee in bankruptcy unless it was taken out with the intent to defraud creditors. Premiums to policies are unlikely to continue during bankruptcy as these funds will be used to pay creditors.
Ba...
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...an, 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 to relinquish security for the benefit of all creditors and take part in the bankruptcy proceedings for the whole debt, or 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 –...
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...he former bankrupt after discharge remains their property and does not vest in the trustee.
Where the settlor of a trust becomes bankrupt, their insolvency does not affect the trust unless it can be attacked under the prior transactions provisions. If the settlor is pay...
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...nt to the individual bearing in mind the trustee in bankruptcy would be unable to make a claim on the assets of this type of trust unless actual payment was made to the bankrupt.
