Bankruptcy question

KentishLady

Hello

I am posting on behalf of my brother in law. He is currently seperated from his ex wife - she resides in their old council flat. He has been staying with us since Easter 2012.

He is planning to submit divorce papers once they have been seperated for 2 years (although she has said she will refuse to sign).

In the meantime they have a large number of debts (both jointly and in their sole names). This week I am going to go through his credit file with him and help him draw up a soa. However from what I already have gleaned it is likely bancruptcy may be his only option to clear his debts.

He has income of ESA (income related main phase support group) which is I think £120 per week or thereabouts, plus DLA £305 every 4 weeks.

They owe:
£45 k from a mortgage they jointly held on a previous flat which was repossessed
£2k water bill (JOINT)
£500 aprox rent arrears on council flat
£700 tax credit overpayment

plus the debt in his name that i know about (there is more!)
Jakamo £400
Brighthouse £106 (now with debt collectors)
plus at least another £5k for various debts now passed to debt collectors.

He has a pension which ordinarily he would start to receive income from at 55 - it has a value of £21k and would produce a lump sum of £5k plus £700 per annum income. His ESA would be reduced by the pension income so this would not increase his income although he would gain the lump sum.

If he was to go bancrupt would his pension fund be taken into account as an asset in the bancruptcy? If so could he lose all of it?He may be able to take his pension early due to ill health so we wondered if he would be better doing that and putting his lump sum towards his debt putting some aside to pay for the bancruptcy fees. Or whether he is better off delaying taking the pension to increase his income once he is actually a pensioner.

If he does go bancrupt how would that affect the financial aspects of the divorce - will that make things easier because there wouldn't be any debts to sort out as such because of the bancruptcy.

I'm assuming that any joint debts the creditors would then try to claim repayments from the ex wife (that won't go down well).

Flm67

Didn't want to read & run. His pension would not be considered an asset in his bankruptcy. Also if he went bankrupt all joint debts would then become his ex's liability.

debt_doctor

Hi,


How old is you BIL now and when is the earliest date he can take his pension?


DD

National_Debtline

KentishLady wrote: »

Hello

I am posting on behalf of my brother in law. He is currently seperated from his ex wife - she resides in their old council flat. He has been staying with us since Easter 2012.

He is planning to submit divorce papers once they have been seperated for 2 years (although she has said she will refuse to sign).

In the meantime they have a large number of debts (both jointly and in their sole names). This week I am going to go through his credit file with him and help him draw up a soa. However from what I already have gleaned it is likely bancruptcy may be his only option to clear his debts.

He has income of ESA (income related main phase support group) which is I think £120 per week or thereabouts, plus DLA £305 every 4 weeks.

They owe:
£45 k from a mortgage they jointly held on a previous flat which was repossessed
£2k water bill (JOINT)
£500 aprox rent arrears on council flat
£700 tax credit overpayment

plus the debt in his name that i know about (there is more!)
Jakamo £400
Brighthouse £106 (now with debt collectors)
plus at least another £5k for various debts now passed to debt collectors.

He has a pension which ordinarily he would start to receive income from at 55 - it has a value of £21k and would produce a lump sum of £5k plus £700 per annum income. His ESA would be reduced by the pension income so this would not increase his income although he would gain the lump sum.

If he was to go bancrupt would his pension fund be taken into account as an asset in the bancruptcy? If so could he lose all of it?He may be able to take his pension early due to ill health so we wondered if he would be better doing that and putting his lump sum towards his debt putting some aside to pay for the bancruptcy fees. Or whether he is better off delaying taking the pension to increase his income once he is actually a pensioner. Assuming that his pension fund is "approved" by HMRC - and the overwhelming majority of pension funds are - it will not form part of his bankruptcy estate, meaning it cannot be claimed by the OR.

However, if he starts drawing payments from the pension before discharge from BR, the OR may ask him to make payments from any disposable income he has as a result. When does he turn 55? (Oops, see DD has asked this same question above)

For more info on bankruptcy and pensions, please read the Insolvency Service leaflet from the link below:

http://www.insolvency.gov.uk/insolvency/Publications

If he does go bancrupt how would that affect the financial aspects of the divorce - will that make things easier because there wouldn't be any debts to sort out as such because of the bancruptcy. Can't really comment too much on the ins and outs of divorce settlements. However I would point out that while separating couples often draw up divorce papers that oblige party A or party B to handle repayments of a particular joint debt, creditors are not bound by these settlements and are still entitled to pursue anyone named on that debt.

I'm assuming that any joint debts the creditors would then try to claim repayments from the ex wife (that won't go down well). Correct - these creditors would remain entitled to pursue his ex wife. Strictly speaking, that would be no different from the current situation - she is liable at present for 100% of the balance on those debts, it's just that there are currently TWO people who can be chased for them.

Hi KL

Answers/further questions in bold above.

Regards

Dennis @NDL

KentishLady

debt_doctor wrote: »

Hi,


How old is you BIL now he's 50 at the moment and when is the earliest date he can take his pension?he can take it straight away with ill health - or he can wait until he is 55


DD

Answers above. He is currently on ESA and DLA which means if he does take his pension his ESA will be reduced £ for £ by the amount of pension he receives so the calculation for disposable income wouldnt change I assume on that basis as the pension is only going to produce an income of £700 pa or thereabouts. BUT he has the option of taking a 25% lump sum too - if he took the lump sum would that mean he would have to pay that towards paying off the debts?

I'm not trying to diddle the system - just trying to help him make the most appropriate financial decisions so he can start living again rather than having no money for new clothes, food etc. Other than ciggarettes (yes I know he shouldnt be smoking!) and £30 per week towards food the rest of his money is servicing his debt and this is just not sustainable long term.

debt_doctor

Is the pension an occupational pension or a private personal pension?


DD

KentishLady

That I am not sure. He had forgotten he had it and only realised when he had a letter from the company asking him to get in touch with them as there may be a policy in his name due to mature. Does this make a difference? Other than this pension he has no other pension arrangements and if he lives to pensionable age will only get the state pension.

I *think* it is a personal pension - the letters from them don't seem to confirm whether it is a personal pension or an occupational one.

I've just taken a look at the bankruptcy forms which ask for details of how much he has contributed - so I suppose he will need to write to the company and ask them for more information.

National_Debtline

KentishLady wrote: »

That I am not sure. He had forgotten he had it and only realised when he had a letter from the company asking him to get in touch with them as there may be a policy in his name due to mature. Does this make a difference? Other than this pension he has no other pension arrangements and if he lives to pensionable age will only get the state pension.

I *think* it is a personal pension - the letters from them don't seem to confirm whether it is a personal pension or an occupational one.

I've just taken a look at the bankruptcy forms which ask for details of how much he has contributed - so I suppose he will need to write to the company and ask them for more information.

Hi again KL

I'm not sure it matters too much whether this was a personal or occupational pension - the advice we've offered further above would still apply. Has it been some time since your BIL paid anything into this pension pot? The OR will check the size of any contributions made recently in order to ensure these contributions have not been artificially high with the intention of putting funds out of creditors' reach. It doesn't sound like anything of the sort will apply in this case.

Regards

Dennis @NDL

debt_doctor

The reason I asked is because a bankrupt can be made to take their private pension at the earliest possible date, whereas an occupational pension cannot.


Some reading here...............


61.25 An excluded pension that comes into payment during bankruptcy or during the term of an existing IPO/IPA
The official receiver may not realise directly the bankrupt’s rights and benefits under an excluded pension, but any payments received by the bankrupt during the term of his/her bankruptcy or during the period of an existing IPO/IPA may be included in the calculations for an IPO/IPA, or the variation of an existing IPO/IPA, subject to certain exceptions (see Chapter 31.7 paragraph 31.7.49).
The trustee has the power to require that the bankrupt bring his/her pension into payment to facilitate this (see paragraph 61.26).

61.26 Trustee has power to require that a pension comes into payment
If the bankrupt has passed the earliest date at which he can drawn down benefits from the pension arrangement, the official receiver, as trustee, can seek an IPO/IPA that will, effectively, require the bankrupt to draw the pension (see paragraph 61.26c). This is the case even if the bankrupt had no intention to draw down the pension rights until a later date URL="http://www.insolvencydirect.bis.gov.uk/technicalmanual/Ch61-72/Chapter61/Part2/Part%202%20notes.htm#2"][COLOR=#0066cc]note 2[/COLOR][/URL URL="http://www.insolvencydirect.bis.gov.uk/technicalmanual/Ch61-72/Chapter61/Part2/Part%202%20notes.htm#2a"][COLOR=#0066cc]note 2a[/COLOR][/URL.
It is unlikely that this principle would apply to an occupational pension. Where the bankrupt wishes to continue in employment it is unlikely they will be able to access their pension fund and continue employment on the same terms. Official receivers are not in a position to require an individual to compromise their ability to work by seeking an IPO/A which can only be funded by accessing an undrawn pension. Additionally, the trustees of an occupational pension scheme may have discretion to pay benefits under the scheme and it is open to argument whether a discretionary payment would fall under the definition of income.


DD

KentishLady

my concern with the pension is ... he is on means tested esa. any pension payment he gets he will lose the same amount £ for £ from his esa. so will make no difference to his available income.

If he is forced to take this early in order to draw down the 25% lump sum to pay towards his debts this will reduce the amount available to purchase an annuity resulting lower pension payments. whilst this will make no difference to his income now, when he reaches retirement age it would make a difference as hed get this pension in addition to his state pension if that makes sense?

KentishLady

I forgot to say - can he be forced to take the % lump sum? And that he hasn't paid any funds into this pension for at least the last 10 years ago (he had actually forgotten he had it until the pension company traced him!)