Insolvency Made Clear: A Guide for Debtors

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Effect Of Bankruptcy Finally, the following claims are theoretically possible but they are almost never used: 5. Assignment of book debts: s344 of the Act. When someone trades, they are likely to have a list of debtors who owe them money. It is possible to assign the debtors to a third party so that the third party can collect the money. Such an assignment would not bind the Trustee unless the assignment has been registered under the Bill of Sales Act 1878. Such registration requires an application to the Queen’s Bench Division of the High Court. It is not common to have such a general assignment of debts. 6. Excessive pension contributions: s342A of the Act. Where an individual has made ‘excessive’ contributions to their pension which has unfairly prejudiced the creditors, these can be claimed back by the Trustee. This rarely applies due to the difficulty in showing that the payments were indeed excessive. It is often easier to show that the pension payments were made to remove the assets from the estate, i.e. to bring a s423 claim. 7. Extortionate credit transactions: s343 of the Act. If the bankrupt takes out a loan with ‘grossly exorbitant’ repayments or otherwise ‘grossly contravenes ordinary principles of fair dealing’ then this can be undone. An exaggerated example would be where the bankrupt took out a loan of £100 for a month, and then had to repay £10,000 30 days later. This is rarely applied due to the difficulty in showing that the loan was extortionate. If the loan is so extreme, the Trustee may be suspicious it was a transaction at an undervalue. 2.7 Calculating the debts of the bankrupt The Trustee will compile a list of the debts of the bankrupt. Potential creditors will be asked to ‘prove’ their debt, i.e. demonstrate that the bankrupt owed them a certain sum of money. Creditors owed debts of less than £1,000 will not need to submit formal proof but will be believed automatically unless there is some reason to challenge the debt: r14.1(3) and para 18A of Sch 9 of the Act. The making of a bankruptcy order stops the clock on interest accruing under a debt. Creditors will prove for the amount owed as of the date of the bankruptcy order. After then, all interest on debts will accrue at the statutory rate of 8% p.a. 25
Insolvency Law Made Clear – A Guide For Debtors Box 8: PROOF OF DEBT Due to r14.2(1) all claims by creditors are provable as debts against the bankrupt, whether they are present or future, certain or contingent, and regardless of whether they have an ascertained value. The Trustee in Bankruptcy will decide what value to give to a proof of debt. The exceptions to this rule are fines, or claims for child support or family law proceedings. The significance of a proof of debt is that a non-provable debt will not be written off when the bankruptcy is discharged. A bankrupt might dispute the existence or size of the debt with a potential creditor. A Trustee is unlikely to continue this dispute because, unlike the bankrupt, they have no personal interest in the matter. From their perspective, a Trustee can either admit the debt upon seeing the evidence the creditor wishes to provide, refuse to admit the debt and see if the creditor wishes to sue them, or settle the claim with the creditor. Most potential creditors are unlikely to want to take a bankrupt to court because such action is expensive, and they know that there is little prospect of recovering the money. As part of this process, the Trustee will ask the bankrupt’s creditors whether any of them hold security. A debt secured on property is one where the creditor is entitled to the proceeds of sale of that property (or the property itself) if the debt is not repaid. This increases their chance of recovering their money. The Trustee will establish whether the bankrupt holds any property which does not belong to him. For example, if the bankrupt had a dispute about who owned particular property, the Trustee will decide who (in their opinion) the property belongs to. If the property belongs to the bankrupt, it will likely fall into the estate, be sold, and used to repay the creditors as a whole. If it belongs to the other individual, the Trustee will return it and that individual will be ‘repaid’ in full. If the potential owner does not agree with the Trustee’s decision, they are entitled to claim against the estate and the court will decide. 2.8 Effect on the bankrupt’s career and business An undischarged bankrupt: • Cannot be a director of a company without the permission of the court. Even if the company is solvent, a bankrupt who is a director will have to change their role within the company fundamentally. It could be that the company simply asks the bankrupt to be an employee. However, it is a criminal offence for the bankrupt to serve as a director under s11 of the Company Disqualification of Directors Act 1986. A bankrupt may need 26
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INSOLVENCY LAW MADE CLEAR A GUIDE F
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Published June 2021 ISBN 978-1-9163
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Acknowledgments I owe special thank
Page 9 and 10: Insolvency Law Made Clear - A Guide
Page 20 and 21: Preface: the effects of the pandemi
Page 22 and 23: Legal terms defined ‘The Act’:
Page 24 and 25: Legal Terms Defined A ‘dispositio
Page 26 and 27: Legal Terms Defined a bankruptcy or
Page 28 and 29: Legal Terms Defined A ‘third part
Page 30 and 31: Introduction and aim of this book T
Page 32 and 33: Introduction And Aim Of This Book A
Page 34: Part 1 BANKRUPTCY The next few chap
Page 46 and 47: Chapter 2 Effect of bankruptcy This
Page 48 and 49: Effect Of Bankruptcy will only choo
Page 50 and 51: Effect Of Bankruptcy Box 5: HOW MUC
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Page 54 and 55: Effect Of Bankruptcy the seller goe
Page 56 and 57: Effect Of Bankruptcy The judge held
Page 60 and 61: Effect Of Bankruptcy to have an awk
Page 62 and 63: Effect Of Bankruptcy 2.10 Running t
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Page 68 and 69: Effect Of Bankruptcy 2.16 Investiga
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Insolvency Made Clear: A Guide for Debtors

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