Will I lose my pension if I go bankrupt?

Governments throughout the Western World want us all to save for our old age so we’re less of a burden on the state.  That’s why we get tax relief on payments into our pension funds, it’s not out of the goodness of their hearts.

But there always has been confusion where different aspects of the law cross over with insolvency law, and one such area is that of pensions.  Up to May 2000, if you went bankrupt, the trustee could get his hands on some of your pension – you see while insolvency law talks about assets that are excluded from a bankruptcy – and thus which you could keep if you did go bankrupt – pensions were not firmly on the list of ‘excluded assets’.  This meant that people were losing money they’d put into a pension many years before they started having financial problems, and because the Trustee could get his hands on the pension money, the bankrupt was becoming more of a burden on the state.  People were also asking themselves why they should bother putting money into a pension pot when they most needed it only to find it taken away from them later on, often for reasons outside of their control.  Also, surely when looking after people in their old age is one of the biggest problems this country faces, surely the law didn’t sit happily with common sense or greater public policy?

The government realised this wasn’t working, so for people going bankrupt from May 2000, they changed the law, so that after that date you could generally keep your pension if you went bankrupt.

All was fine for a while….it was a bit like an uneasy truce, things didn’t seem quite right… trustees in bankruptcy still had a duty to maximise realisations for the creditors but couldn’t get their hands on what could be the bankrupt’s biggest asset.

Under the wording of the insolvency law (it goes back to 1986!), any income you actually receive – or become entitled to – from any source, including your pension, is subject to any income payments agreement or income payments order that might be in place – this is a 3 year agreement whereby you pay your surplus income into the bankruptcy.  I can understand that, but you would have thought that at least your ‘capital’ is safe… at least it was thought to be…

In 2012 a case passed through in the High Court – Raithatha v Williamson – in that case the judge decided that an income payments order could be made where the bankrupt had the right to elect to take a drawdown pension even if he hadn’t yet done so.   The trustee could even force the bankrupt to draw down a capital sum and give it him if it meant he had income above his reasonable domestic needs (which would almost always be the case given the size of the drawdown).  This drove a coach and horses through the general principle of ‘trustee cannot touch’ for people who were nearing retirement age – even as early as 55.  So now a trustee could essentially force a bankrupt near 55 to take a drawdown, whether they wanted to or not, grabbing money previously thought to be safe and imposing an increased burden on the state down the line!  For some bankrupts we were essentially back to something like the old rules which the government tried to change because they didn’t like them!

Then in December 2014, a judge in another High Court – this time in the case Horton v Henry – came to the opposite decision!  In that case the judge decided the trustee in bankruptcy could not get an income payments order over a personal pension that is not yet in payment as there was no ‘legal entitlement’ on which the order could bite.  So now we have two conflicting High Court decisions!  Until the Court of Appeal decides one way or another, we’re stymied!  What do advisers tell people in their 50s, 60s or 70s, who are contemplating bankcuptcy?

But it applies only to people in their 50s, 60s or 70s, right, and only for small sums of money, right?

Well yes and no, you see in April 2015 the pensions laws in the UK change, enabling people over 55 to drawdown all their pension from their pot.

What this means is that anyone 52 years or older (allowing 3 years for an IPO/IPA) should, if at all possible, defer making any decisions to go bankrupt or not until the appeal is heard and decision made, or the government bring in some emergency legislation.  It might be that you will have to use other options such as a Debt Management Plan or Token Payments to buy that time.

Bank sold your property for less than it's worth?

I’m seeing a good number of customers of the banks complaining that their assets have been seized and sold at a massive undervalue, often leaving them with a personal guarantee liability that could lead to them losing everything.

Why is that?

Is it just because of where we are in the recovery/recession? Are the banks merely taking the opportunity, as they always do at the end of recessions, to reduce their loan books by selling out at a time they, but their customers don’t, consider to be optimum?  Or is there a concerted land grab going on? Are the banks really not best set up to, or interested in, maximising realisations?  Are the people that come to see me the victim of the negligent actions of a few?  Are some individuals within the banks acting fraudulently to feather their own nests or those of preferred clients/contacts?

All these views have been expressed to me and more… exactly where the truth lies differs from bank to bank, department to department.  Suffice to say there is a growing number of former clients of the banks who tend towards the blacker views…

It’s clear to me that the banks are flexing their commercial muscle and ‘burying’ many claims for having (at least allegedly) sold assets at an undervalue.  You see it’s really not very easy for anyone, however knowledgeable they are in the law and resources they have, to take the banks on.  The banks will wheel out their tame, (very) expensive, and (very) experienced legal eagles – I say tame because they do the banks bidding without any exploration as to whether their arguments have any legal or moral foundation.  The banks have simply bought them to cover up their malpractice.

What I’ve seen several times recently could potentially be attributed to mere incompetence.  5 years on from the start of the recession, the banks have been holding on to a lot of property, in one way or another, for a long time, longer than they want.  Unable to sell it until now, they’re now shifting far more property.  But what they are not doing is:

  1. Casting a fresh pair of eyes over cases.  Old mistakes are being perpetuated.  There’s no vision.
  2. Getting a fresh agents’ report advising on how best, at this time, in these market conditions, to expose the property to the market.  They’re adopting a tick box  approach more appropriate for an earlier time.  If they marketed it previously, they’re relying on that.

Let me give you an example of one case I am working on right now.  In the 3 or so years between the bank’s repossession and ultimate sale of a piece of land, some laws changed and the market for development land in the area improved massively.  My client’s property turned out to be a ransom strip, holding up a £30m residential development, making it very valuable indeed on a Stokes v Cambridge basis.  The bank had even failed to heed their own agents’ advice to investigate the possibility of the land being a ransom strip.  They’d sold it as a piece of pretty useless land yet still chased the personal guarantors for their alleged ‘losses’ – had they sold the land for what it was really worth my client would have had a serious amount of money handed to him, there would have been no loss.   Negligent? Fraudulent?  Whatever it proves to be, it is actionable, although the bank will fight us every step of the way.

My advice?

Be prepared for a long fight – the bank will not give way unless forced to do so in court.

You can expect judges to give you every chance to present your case.  It is almost as if they have seen a lot of other similar cases to yours and are driven to see justice done for you, the small man.  Do your best to present your case properly, backed up by lots of hard evidence – after all you can expect the banks to best present their own position and you need to prove they were somehow lacking.

Expect the fight to be costly in money terms.  Your lawyers, agents and other experts will be expensive.  And if you lose you can expect the bank to seek costs against you – and that will be at their lawyers’ extortionate rates, meaning you not only pay your own costs, but also a good proportion of the other side’s.

Expect the bank to play the giant’s role in your David v Goliath fight.  They will use every trick in the book to bully you into giving up the fight.  They will try to wear you down over time.  They have systems to take care of things, to manage the litigation, but for you it’s personal and there is no escape.  You’ll not sleep properly, this will be a constant worry.  To win you will need to be resilient and in good health.

If you’d like some help fighting a bank, I’d be delighted to help… just call or email me.

Mom and Dad's bathroom tiles and the OMG moment they created!

 

I’ve recently lost both my Mom and Dad. When I went around the family house last night, the quietness hit me, and writing of Mom’s eulogy has got me thinking. Yet standing there in the bathroom, tinged with sadness, I couldn’t help but chuckle. And I’m going to share why. And later on in this newsletter I’ll be sharing something else, something pretty big, that few of you know about me because it’s highly relevant right now…

But first, the story of the tiles… back in the ‘70s when I was barely in my teens, I negotiated with my Mom and Dad to tile the bathroom in return for some money towards a youth hostelling trip. This, my first major DIY project, was going great, I was really proud of my work, that was until my Uncle Terry popped by to see how I was doing…

You see, Uncle Terry was a DIY expert, he’d taken his old 80 year old terraced house and turned it into a veritable palace. We thought that what he didn’t know about DIY wasn’t worth knowing…

He came into the bathroom. The picture in the heading of this email is what he saw. (and yes all my handiwork is still there!)

‘You’ve not fitted them with the ‘Chick pattern’ showing!’ Here is a close-up:

Close up of the chicken tile

Have you ever had one of those OMG moments which live with you forever? Well, this was one of mine.
And every tile is the same… only neither I nor my Mom or Dad noticed… and I’d already tiled half the room.

Having exhausted the dictionary’s stock of expletives and a few more, my parents and me consulted… should I carry on, ignoring the chicken, or not. I carried on…

As I fitted every tile, all I could see were chickens, facing left (arguably properly), upside down and facing right, lying on their back or suspended face down. Those bloody chickens still haunt me to this day as I sit or stand in the loo!

The point is once you’ve ever had such a wake up ‘OMG’ moment like that, it can never be reversed, once the cat it out of the bag, it’s out forever. Never again can you look at things in the same way. You’re haunted.

And I’m haunted by some of the things I’m seeing happening in the professions nowadays …

The banks have had a really tough time reputationally in recent years. They got found out for the ‘traders’ they are. Banking is no longer one of the professional pillars of society. Instead they’re the people skulking in the corner of the kitchen at parties. I’m not here to knock the banks, that’s far too easy and cheap a shot, I’m talking about some of the things that are happening in other professions, particularly in my own of insolvency, and in accountancy, where similar things are happening as have happened in the banks. Let me explain…

I’ve just finished reading the book ‘the Wolf of Wall Street’. Incredibly it’s the biography of a real – and totally dispicable – fellow called Jordan Belfort. He was a financial expert who’s probably best summed up by his closing words at the meetings he held to stir up his sales people – ‘now go rip their (sic his clients’) f—ing eyes out’. He’d talk about his staff being the hunter, the clients their prey.

In Jordan’s world, every client was treated as a ‘transaction’ – even though his people – the so called experts – gave the impression there was a real relationship with the client. The purpose of this masquerade was to extract maximum fees from the client regardless of whether what they were selling them was right or wrong for the client. Giving the client the impression the expert cared for their best interests was all part of the game.

Jordan also talked about ‘plausible deniability’ and ‘rationalising, justifying and denying’ to anyone decrying what they were doing … all things it seems to me the professions are doing nowadays to try to best protect their elevated position. How many times have you heard a profession shout down proposals to change how things are done? How many times have you seen sales people within a profession advise on a particular course of action? – are they really the best people to advise?

The problem many people have when taking advice from experts is we live in a highly complex world where there is often no readily visible benchmark to compare advice at the relevant time. And that’s what some accountants and insolvency practitioners are doing right now – feigning an interest in the wellbeing of the client, giving them appalling advice which digs the client into an even bigger hole yet earns the giver of advice maximum fees.

In my blog of recent weeks you will find 3 links to articles I’ve written on this topic, eachdemonstrating the pain felt by real people who have come to me for advice after having been given ‘plausible advice’ from other experts. Please take some time to read these – you may know someone who is in this position right now. You may even have introduced them to the insolvency practitioner.

So why’s this happening?

It’s simple really… for some, doing the right thing has become far less important than lining their own pockets. It comes down to the driving force behind the person.

I’m going to tell you something now that few outside of my profession know. It’s what’s determined what I do and how I do it for the last twenty years…

In the 90s I joined a firm. The role had fantatstic promotion prospects, keep my nose clean and partnership, my main aim in life at that time, was virtually assured. Soon after I joined I found that one of the owners of that business was working with other professionals – bankers, agents, etc – to seize people’s businesses, massively defrauding the rightful owners of those businesses of their livelihoods. The problem for the person in my firm who was heavily involved in this was I had a ‘role model’, and if ever I encountered any sort of problem, I’d ask myself what he would do in those circumstances. And I then did it. For my role model doing the right thing was always more important than doing the thing that makes you most money.

To cut a long story short, I reported the guilty partner to the regulator – not an easy decision despite the fact that my role model happened to be the chair of my regulator’s ethics committee at the time. It was a terrible time for me personally when every sinew of what I was all about was tested – after all I’d come from a working class background and about to break through into the big time. The guilty guy was sacked from the firm and cut a deal with the regulator to accept lesser charges in return for handing his licence back quietly. The whole episode was hushed up and for a while I was shunned by some in the insolvency profession – you see no one likes a whistle blower. For a good many years afterwards people would ring me from insolvency firms around the country asking for my advice on how they should deal with major issues going on in their firm – they knew they could trust me, they knew I’d encountered similar problems.

It’s been a few years since I last saw Roy, my role model – the last time was at the Baggies when I went up him, shook his hand, thanked him for the fact that unlike many of the class of ‘85 I was still working and not living it up on some beach somewhere but that I was so very glad because I could sleep properly at night. Whenever I have seen him in the last 20 years I have always thanked him for having taught me what’s right and what’s wrong. He’s been a father to me in business.

It might be me, but right now I’m not seeing many role models of the calibre of Roy. In fact I see far too many Jordan Belfort type characters.

Do I regret standing firm when it was far easier just to walk away?

Not one bit, you see it’s part of who I am, it’s something they can put on my tombstone when my time comes: ‘He always did the right thing’ will suit me fine.

Here’s a question for you …Are you dealing with a Jordan Belfort or a Roy? Do you know?

Your turn to do some thinking…
Paul Brindley
– Chartered Accountant, Licensed Insolvency Practitioner, and much much more!
Midlands Business Recovery
Tel 01902 672323
www.midlandsbusinessrecovery.co.uk

 

BEWARE! – What you're not being told could be more important than what you've been told (2)

This is the second in what is likely to be a series of articles over the poor advice that my fellow insolvency practitioners are giving out.

In my last article – click here to read it – I talked about how owners of small companies that had no, or very few assets, were being talked into paying for liquidations they neither needed nor were obliged to carry out.  Today, I’m going to be talking about personal insolvencies, specifically a process called an ‘individual voluntary arrangement’ or IVA.

Take a look on the web and you’ll see numerous references to how easy IVAs are to both get into and live through; how they’re great because they’ll write off most of your unsecured debts; how you’ll protect your home; how they will leave you with money in your pocket every month; how they are somehow better and softer than bankruptcy.  It all sounds too good to be true…

And it often is.

You see, what they don’t tell you is that one third of all IVAs fail.  This is not anecdotal evidence, it’s hard evidence gathered by the government – click here to see the figures.  Look at figure 2.

OK, so one third of IVAs fail. Big deal, that’s not so bad, is it?

Well yes, it is.  You see not all IVAs are the same – some are income based, some are ‘one-off’ settlements.  Under a ‘one-off’ settlement type of IVA, money from an inheritance, windfall, gift from family or friends, or the sale of assets is paid into the IVA in a lump and then paid out to the unsecured creditors in full and final settlement of their debts.  The point is this money is certain – it’s probably already sitting there in a solicitor’s or the Insolvency Practitioner’s bank account held on trust pending the creditors’ agreement to the IVA – the success of the IVA is assured.  So if we knock out of the equation the one-off settlement IVAs, the true failure rate for income based IVAs must be higher than a third… let’s be conservative and say it’s 40%-45%.

Do you hear IPs telling people coming to them looking for an income based IVA that the process they are about to go into is about as likely to fail as it is to succeed?  No, I don’t.  Do they warn people of the impact on them of the IVA failing?  If you’re lucky, it’s skated over, after all it’s never going to happen is it? – you have every intention of fulfilling your part of the bargain.

So now we know the IVA has about 50-50 chance of failing as succeeding, but what is the impact of it doing so?

Let’s go back to some basics.  Back in 1986, IVAs were invented as a softer alternative to bankruptcy for sole traders, i.e. business owners.  They weren’t invented to deal with what they have turned out to be used mainly for – hundreds of thousands of consumers who have unsecured credit card and loan debts they could never pay.  So with something like 50,000 a year IVAs being put in place, rather than the handful expected, the insolvency governing bodies got together with the banks and agreed a standard form of IVA for such consumer debtors.

It’s called the ‘IVA Protocol’ – here’s a link to the government’s website linking to its various versions over time – and in a number of ways every version of it is truly horrible.  It’s clear the banks had the whip hand in the negotiations as it’s very much written in the banks’ favour.

So what does it say about failure?  Well, if you miss just 3 income contributions into the IVA over the 5 year period of the IVA – 5 years is the standard duration – the Insolvency Practitioner can petition for your bankruptcy.  It’s at his discretion, you cannot stop him. With many IVAs failing in years 2,3, even 4 or 5 of the IVA, all you’ve done while you’ve been paying into the IVA is throw good money after bad.  And what’s worse, the longer you stay in the IVA, the bigger a chance you’re giving a trustee in bankruptcy of taking your home off you! (house prices tend to go up, your mortgage will have either stayed the same or gone down, so after a time you’ve probably got equity you didn’t have previously that the trustee can get his hands on).

I have a good number of other issues with the IVA Protocol, but what really concerns me is that not once have I ever had someone who’s subject to one of these things come to me ever fully understand what they had got themselves into.  They simply got sold a story that it was the panacea to all their financial woes.  Not once has any Insolvency Practitioner fully explain the ‘what ifs’ satisfactorily so the person fully understood everything they needed to know before taking the plunge.  And that’s inexcusable.

I recognise that no one has a crystal ball that tells them what’s going to happen over the 5 year period of an IVA covered by the IVA Protocol … that people tend to be optimistic as to the future and hate taking a pessimistic view of what might happen … that people who are desperate will cling to any lifeline… but there is never any excuse from any insolvency practitioner for not being entirely honest with the facts and open as to the implications of a 50-50 gamble going the wrong way.  And that’s why I have a problem with my fellow IP’s advice.