Bankruptcy – What happens to your pension?

Bankruptcy once declared makes you lose control over all your assets depending on the type and ownership imposed on it by you. You pension is also an asset and is no exception for being seized by your trustee for payment towards your debts. The below guide is to provide you a knowledge of who and how claims your pension, how you can protect it and where you can resort to for advice if required.

The trustee is an appointed person by the court who claims your assets to verify if they can be used for the purpose of clearing the debts. It is your responsibility to include your pension details along with the asset details that you provide to the Official Receiver during the initial stages. The trustee would then analyse these details to check for their debt repayment potential.

Pension details required

The pension details that you provide to the Official Receiver or the trustee might include the name of the schemes which you and your employer has contributed, the amount of money contributed in it, the current amount or any previous lump sum that you are receiving or received from the pension. There are just few questions and you are responsible to answer any question posed by the trustee that would help him in managing your affairs. Non co-operation with the trustee can even lead to court action and further extension of bankruptcy terms.

Pension types and the way they are affected by bankruptcy

There are certain components or types of pension that cannot be claimed to be added into your bankruptcy estate. Your state pension, payments from State Earnings Related Pension Scheme (SERPS) and any other protected rights that are equivalent to the SERPS cannot be claimed and are protected during your bankruptcy.

Any other types of pension and the benefits received from it can be claimed by the trustee based on the date of your bankruptcy and the approval status of your pension by HMRC (HM Revenue and Customs). In case your bankruptcy has been declared either on or after 29 May 2000 and your pension is also approved by HMRC, then it is not classified as an asset and cannot be claimed to resolve your debts. The trustee can always seize any benefits or lump sum that you receive from your pension fund but only during the period of your bankruptcy. Alternatively, if your petition was filed before 29 May 2000 or is not an approved one by the HMRC, then it becomes an asset towards your bankruptcy estate. Any benefits and lump sums can be claimed at the earliest retirement age defined in your pension even if the date is years later from your bankruptcy discharge.

Some pension policies come with a forfeiture clause which denotes that you lose any rights or benefits on the fund in case you are declared bankrupt. Under such circumstances, your trustee will not be able to claim such funds and these situations will be analysed by the trustee during the initial phase of asset assessment.

If you are already receiving payments from your pension plan, then this becomes a part of income towards your debt repayment. This amount can be agreed upon by you and your trustee to become a contribution towards your debt repayment and this system is done by means of an Income Payments Agreement or the court can issue and order to contribute your pension income towards your bankruptcy estate by means of an Income Payments Order. Both these agreements can extend for a period of 3 years from the date of issue. Your trustee can also exclude this income from your estate contribution in case you are not able to afford due to your income being meagre enough for survival.
You can agree to make a contribution from your income to your debts (using an Income Payments Agreement) or the court can order you to (issuing an Income Payments Order). Both arrangements last for three years.

How to protect your pension

In case your pension is being claimed during your bankruptcy, there are ways by which you can protect it. You can apply for a court order for excluding it from the estate or you can come to an agreement regarding this with your trustee. You can also however try to buy back your interest in the pension policy from the trustee. The Official Receiver or trustee can guide you on the various steps you can take to protect your pension fund form being claimed.

Future contributions to your pension
You are allowed to contribute to your pension plan even during the term of your bankruptcy, but it is advisable that you talk to your trustee and agree with him before you proceed on this. Any sort of income that is in excess needs to be utilised towards paying your bankruptcy debts and hence contributing to your pension plan during your term of bankruptcy needs to be done after an agreement with your trustee or Official Receiver.

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