Creditors to be Paid from Bankrupt’s Pension

In Raithatha v Williamson, the bankrupt respondent was 59 years old and so entitled to draw his pension. However he had not begun to do so. The trustee in bankruptcy sought an order allowing him to claim part of the bankrupt’s pension, even though it had not been activated.

The issue to be decided was whether an individual can be compelled to draw their pension in order to allow an income payments order under s 310 of the Insolvency Act 1986 (which states that a trustee in bankruptcy can apply for an order claiming part of the bankrupt’s income for the estate). The court decided that this was allowable – provided that the individual had an ability to draw his pension under the individual scheme rules, i.e. he was old enough.

This complements another High Court decision in Blight v Brewster, where a debtor was ordered to take his tax-free lump sum from his pension pot (representing 25% of the fund value) to meet the claims of his creditors. In that case, the judge considered there to be ‘a strong principle and policy of justice to the effect that debtors should not be allowed to hide their assets in pension funds when they have a right to withdraw monies needed to pay their creditors’.”

These cases however do not change the overall principle when considering an income payments order, that the court must have regard to the resulting income of the bankrupt, which must be ‘necessary for meeting the reasonable domestic needs of the bankrupt and his family’.

Geoff Kew

Published on 23/04/2012