How Does A PIA Affect Your Assets?
Assets - you spend a lifetime building them up and all of a sudden it looks like you might lose them all to a PIA or even bankruptcy. The prospect of losing everything can make even the strongest of people quiver in fear and put off making decisions until the very last moment. The trouble is nothing can be further from the truth about PIAs and bankruptcy - and waiting until the last moment to overcome your fear and do something to tackle your debt (or waiting until your creditors do) means there are less and less solutions open to you.
We’ve all heard the stories of people being left with nothing after insolvency but the clothes they’re standing up in. And that’s exactly what they are – stories, myths, urban legends. The truth of the matter is that under the insolvency rules you must be able to enjoy a reasonable standard of living and cannot be stripped of your belongings or made to sell your home or investment properties, particularly if you are earning an income from them. However there may be some assets that you have which could be used as part of your PIA plan for creditors – and it makes sense to do so. A creditor may not be willing to agree to any plan if it thinks you have a large of amount of assets being deliberately hidden. A fine balance needs to be achieved.
So first of all, what is considered to be excluded under the new Personal Insolvency Law 2012? Generally any of the following household-related items which you use on a daily basis:
- Your principal residence
- Clothing and shoes
- Wedding and engagement rings
- Medical aids or medical equipment
- Televisions, computers and recording equipment
- Anything used for the care of children in your household, including toys
- Furniture, fixtures and fittings
- Garden items like lawnmowers and strimmers
- Household and white goods e.g. cookers, washing machines and dishwashers
- Anything required for education or training of anyone in the household
- Anything you need to conduct your profession, trade or business, such as tools, books, implements etc
Anything on the list will not be considered by a PIP as part of their asset investigation, which looks at the assets you have recently bought and sold. It’s not unheard of for people to shift assets around to stop them being taken as part of the PIA – sometimes gifting them to people or even selling them for much less than they are worth to friends and relative with an eye to getting them back one day. Usually it is not worth doing so, as a PIP can look as far back as five years for any irregularities and have the sale revered by a court order.
So outside of these everyday items, a PIP would be looking at the following as part of the PIA asset investigation.
Various financial accounts such as stocks, shares and/or market funds, as well as ISAs and savings will be looked at by your Personal Insolvency Practitioners (PIPs) to see if they can be used as part payments for creditors.
Any income from pensions, including monthly payments and lumps sums, will be considered as part of your agreement with creditors, although your pension fund will be excluded. The only exception to this is approved retirement funds.
So while you may have to stop paying into your pension during your PIA, your pension fund itself cannot be raided to pay creditors. However your PIP will be looking to see how much you have put into your pension during the previous three years, and if they believe you have contributed excessive amounts they can ask the Circuit Court to recover those contributions.
If you drive an expensive car you will almost certainly be asked to downsize to a less expensive model to release some cash to your creditors. Unlike many other debt management solutions in the UK, PIAs seem to regard vehicles as a bit of a money pit. Where someone lives and works in the city with good public transport links, it is likely they will be asked to give up the car to save the money that is used for driving and maintaining a car in the city. If you have to drive to work and the transport links are not good or it would cost more money than driving, you will be able to keep a car although it may not be the one you have or necessarily want. If you are self-employed and have a work-related vehicle you will not have to give it up.
Items like caravans, boats, jet skis, car trailers and leisure vehicles will all come under scrutiny by your PIP if you own them. If you own classic cars these too may be required to be sold unless you can demonstrate you earn income from them (such as weddings or events)
Items like jewelry (excluding your wedding and engagement ring), paintings or other artworks may be considered by the PIP as a means to raising income.
While it can be galling to watch a lot of your assets being used to pay creditors, they may be able to mitigate the effects of, or even avoid, needing a PIA altogether. This is the time you need them the most. This is the rainy day you thought might one day come.
For more information on how a PIA could affect your assets, call one of our experienced PIA advisors now on 0800 043 2027.