LEGAL UPDATE: What Happens When You Go Bankrupt?

Numerous things happen when you go bankrupt. However, there is one less thing you need to worry about, after an important ruling earlier this month.

The Court of Appeal has ruled that individuals facing bankruptcy will not necessarily have to cash in their undrawn pension pot, to pay off their debts.

Pension freedoms allow those over 55 to access their pension pots, with the first 25% being tax free. A Court ruling from 2012 had determined that a lump sum payment from a pension pot could be counted as income (not just pension payments) and so could be used towards paying outstanding debts.

This meant that if you were over 55 (the minimum pension age) when you were declared bankrupt, you could be forced to draw down your pension to contribute towards your outstanding debts.

However, in June this year, a Court of Appeal judgement contradicted this position and determined that an individual entering bankruptcy could not be forced to draw down money from their pension pot. However, this ruling was appealed.

On the 7th October 2016, the Court of Appeal dismissed this appeal and ruled that anyone entering bankruptcy could not be compelled to use undrawn pension entitlements to pay their Creditors.

Prior to this ruling, someone over 55 could have been forced to cash in their pension savings where an Income Payments Order (IPO) was issued- whether they wanted to or not.

Most people over 55 have a considerable pension pot put aside and the Court could have forced them to use some of this to pay off their debts. This would have added worries about what the individual would do in their old-age on top of their current financial misery.

This ruling will be welcome news for those facing bankruptcy as they know that their pension now has greater protection.

Andy Rudkin, Head of Dispute Resolution at Else Solicitors commented: “This case will come as a welcome relief to those insolvent individuals facing the possibility of bankruptcy: they will no longer be compelled to draw down their pension entitlements. Bankruptcy is a very stressful process and it places a considerable emotional burden on those undergoing it, as well as their families. This ruling will help to alleviate at least some of this pressure.”

“However, any attempt to make excessive contributions to a pension prior to insolvency in a deliberate attempt to secure that money, is highly likely to be met with Court Orders allowing it to be recovered for the benefit of the Creditors.”

“What this does highlight is the importance of an individual getting their affairs in order. There are many options open to individuals who are under financial stress and unable to pay their bills and the money they owe.”

“I highly recommend that you seek legal advice as early as possible. A qualified solicitor can then discuss your options with you and advise on what you should do to get your affairs in order as well as the insolvency options available to you.”

Why Else?

Else Solicitors has helped many individuals under financial pressure by finding the right solution for them. There is no “one-size fits all” solution, and our friendly team will guide you through the various options, so you can make an informed decision about your financial future.

We offer a personal, jargon-free and confidential service backed by many years of experience in this area. An initial consultation with one of our personal insolvency or bankruptcy solicitors is free and without obligation.

If you are facing personal insolvency and potential bankruptcy then we invite you to contact Andy Rudkin, Head of Dispute Resolution at Else Solicitors on 01283 526239 or at

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