Bankruptcy After 29 May 2000
The Welfare Reform and Pensions Act 1999 protects all pensions
arising from tax-approved pension schemes against being part of a
bankrupt's estate, for anyone made bankrupt after 29 May 2000. So,
the Trustee In Bankruptcy (TIB)
cannot control the pension to pay off creditors.
The TIB can apply to the Court, however, to receive a pension in
payment for a period, under an Income Payments Order. But the
Enterprise Act 2002 has reduced the automatic discharge period for
people made bankrupt after 1 April 2004 to one year, so it is
anticipated that a TIB will have little time to apply for an Income
Payments Order. Also, the bankrupt can make an out-of-court
agreement with the TIB to pay over a part of the pension for a
specified period.
However, the discharge period can be extended if the bankrupt
fails to comply with the obligations of the bankruptcy order. This
can happen if the bankrupt for example had made what are deemed to
be "excessive" contributions to a pension policy before
bankruptcy.
Bankruptcy Before 29 May 2000
If you became bankrupt before 29 May
2000, the government's Official Receiver will take control of your
assets and pass them over to a Trustee in Bankruptcy (TIB)
to use to pay off your creditors. Pensions are an asset you are
entitled to receive at some point and therefore are potentially
property that can be passed over to the TIB.
The position of your pension may depend on:
- the date you were made bankrupt;
- whether you have been discharged from bankruptcy or not;
- whether your pension is an occupational pension or a personal
pension.
Q & A's
For those made bankrupt before May 2000 automatic discharge only
comes three years after the bankruptcy order being served. The
Trustee in Bankruptcy (TIB) then takes possession of the bankrupt's
estate and as pensions are part of the estate in bankruptcy, they
become the possession of the TIB.
If you had an occupational pension, you might have avoided the
TIB accessing your pension: the trustees of the scheme could simply
apply the forfeiture rule (provided the scheme has one) to your
benefits, removing your right to receive them and therefore the TIB
could not take them over. The pension could therefore not be part
of your estate. The downside, however, is that you can only
eventually get any benefits at the pension trustees'
discretion.
By contrast, if you had a personal pension plan or stakeholder
pension scheme, the TIB could claim a right to it immediately.
For people made bankrupt after 29 May 2000, no approved pension
will form part of their estate in bankruptcy, and from 6 April
2002, pension Trustees can no longer apply a forfeiture rule to
bankrupt members' pensions.
Pensions from unapproved pension schemes can still form part of
a bankruptcy's estate. However, you can take steps either through
the Court or by agreement with the TIB to protect all or part of
your pension.
There are legal arguments to say that this is possible and
arguments against it, so you would need to take legal advice.
