UK Court Rules Pensions Funds are Untouchable in Bankruptcy

by San Antonio Attorney

A Court of Appeal in United Kingdom has ordered that creditors will not be able to force pension savers facing bankruptcy to withdraw their savings in order to settle outstanding debts.

Under UK’s Insolvency Act of 1986 section 310A, the bankruptcy trustee is responsible for issuing an income payments request to a debtor, asking him or her to agree on a debt repayment scheme using their income for a specified duration (often three years).

Last June, it was ruled by a High Court that individuals facing bankruptcy proceedings are not required to use undrawn pension savings but this decision was then contested.

On Oct. 7, the appeal was dismissed by the Court of Appeal.  It involved an earlier ruling in Horton versus Henry case.

The case was mainly about whether a bankrupt person who is ordered to use income payments can be mandated to give up their pension rights to settle their debt.

The initial hearing of Horton versus Henry was in December 2014.

During that time, the judge ruled that the bankruptcy trustee has no right to undrawn pension funds in case the owner files for bankruptcy.  Furthermore, this law covers rights to lump sum pension.

But the decision in the case of Raithatha versus Williamson in 2012 contradicted to the ruling in Horton versus Henry.  In Raithatha versus Williamson, the High Court held that people with pension savings that haven’t matured yet could be taken by creditors under an IPO.

Individuals who are 55 and older could be forced to use their pension in bankruptcy proceedings, if that court ruling had set a model.

Experts say that pension freedoms basically altered the way savers can use their retirement money.

If the 2012 case was to be followed, it would have caused more financial problems to people, according to another expert.   Fortunately, the UK legal system shows that its acknowledges pensions are protected from bankruptcy trustees, the expert said.

 

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