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.

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.

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.

Need help filling out your bankruptcy forms?

Need help filling out your bankruptcy forms?

If you are struggling to complete the forms needed to petition for your own bankruptcy, you’re not alone, you see the forms were created by a civil servant who appears to have gone out of his way to make things difficult!  They contain far too much jargon, especially form 6.27, the debtor’s petition; and the explanatory notes are rubbish! Continue reading “Need help filling out your bankruptcy forms?” »