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Out of pocket

14 September 2012 / Roderick Ramage
Issue: 7529 / Categories: Features , Banking
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Roderick Ramage describes a radical shift in the law on bankruptcy

When an individual becomes bankrupt, his estate automatically vests in his trustee in bankruptcy (TIB) under s 306 of the Insolvency Act 1986 (IA 1986).

Where the bankruptcy order was made before 29 May 2000, it was established in Re Landau [1997] 3 All ER 322 that the TIB was entitled to claim the entire pension benefits of the scheme member, not just pensions in payment. All the member’s rights under the policy excluding protected rights (ie rights where contracted out of the state second pension) vested in the TIB and continued to be vested in him even after the bankrupt was himself discharged, enabling the TIB to claim entitlement to them until all debts were discharged.

In an effort to protect their members, many pension schemes introduced clauses to forfeit a member’s entitlement to benefits automatically upon bankruptcy and to bring into operation protective trusts, under which the trustees had a discretion to make payments up to the value of those benefits

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