Paying a debt after insolvency

[eteb3]

Not strictly a business questions as it’s relating to personal bankruptcy (not mine, I’m pleased to say).

Can anyone tell me what happens if a bankrupt pays back a debt after their bankruptcy? Does it reactivate the debt?

And is the answer different depending on whether the payment is during the period of bankruptcy or after discharge?

And after the bankruptcy are they still obliged not to prefer one creditor over another?

Thanks

 

[Elliot Green]

There are many variations capable to answer this point as it all depends on the facts. However in general terms discharge from bankruptcy restrictions is not concerned with discharge from bankruptcy debts - that is into apples and pears.

Payments like this pre discharge (of restrictions) could potentially (again depending on the facts) introduce complications such as perhaps after acquired property issues.

If a bankrupt pays back a debt post bankruptcy, then the concept of preference doesn't arise from a section 340 point of view. The matter is more akin to volunteering payment as opposed to a matter of liability. The liability is not the bankrupt's per se; it is the liability of the bankruptcy estate.

This is a very limited answer to what one could write an essay on all the potential permutations here. As a result, no reliance should be placed on this response. Certainly no responsibility or liability is accepted. It is a general response designed for limited information purposes only.

 

[Lisa Thomas]

Not strictly a business questions as it’s relating to personal bankruptcy (not mine, I’m pleased to say).

Can anyone tell me what happens if a bankrupt pays back a debt after their bankruptcy? Does it reactivate the debt?

And is the answer different depending on whether the payment is during the period of bankruptcy or after discharge?

And after the bankruptcy are they still obliged not to prefer one creditor over another?

Thanks

When you say 'after bankruptcy' has your friend been discharged from their bankruptcy, or do you mean post the bankruptcy order, but whilst still Bankrupt?

 

[eteb3]

has your friend been discharged from their bankruptcy, or do you mean post the bankruptcy order, but whilst still Bankrupt?

Either, really. They've been advised (not by me!) that they have a moral obligation to pay all their debts, and that they should continue to try to do so. It's the effect of that under insolvency law that I'm bothered by.

 

[Lisa Thomas]

Bankruptcy will wipe out most of their debts (some debts survive bankruptcy). They will not have a 'moral' obligation so should not feel forced to pay any creditors that fell into their Bankruptcy estate.

If they pay a debt whilst they are still bankrupt, or subject to an income payments agreement, their Trustee will no doubt want to investigate where the funds came from, and how they had the funds to be able to pay the debt. They will also need to know the details in case the Trustee was due to pay a dividend to the creditors.

Post BKY discharge, and once they have been released from any obligations under an Income Payment Agreement, they are free to do what they like with their money so if they choose to pay one of their creditors back, that is their prerogative, but I don't see why they would/should.

The reason they were bankrupted would have been due to the fact they couldn't pay their debts...