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August 2008
Introduction
The Enterprise Act 2002 (EA2002) amends the Insolvency Act 1986 by introducing a new section 283A, concerning the process for dealing with a bankrupt’s family home. These provisions are intended to provide a timescale within which the bankrupt’s interest in a family home may be realised by a trustee, thus striking a balance between the interests of creditors, the bankrupt and his or her family.
Although the personal insolvency law changes introduced by the EA2002 took effect on 1 April 2004, the EA2002 also detailed ‘transitional provisions’ relating to the family home where an individual was adjudged bankrupt on a petition presented before 1 April 2004, and the bankrupt’s interest in the dwelling-house fell to be dealt with under section 283A. The transitional provisions period ended on 31 March 2007 and most dwelling-houses to which the provisions applied will now have been dealt with by the trustee, or have re-vested in the bankrupt.
There may be a small number of cases where there was late notification of the bankrupt’s interest in the property, or where the court has extended the 3 year period in which the interest in the property vests in the trustee. Should further information regarding the transitional provisions on the family home be required, see Technical Manual (TM) – Chapter 33 Annex 3.
2. The Civil Partnership Act 2004
The Civil Partnership Act 2004 (CPA2004) gives same sex couples the ability to obtain legal recognition for their relationship. Those couples who form a civil partnership have equal treatment in a wide range of legal matters with those of opposite sex couples who enter into a marriage.
In order to achieve this equality, a wide range of legislation, including that covering insolvency, has been amended to include references to a civil partner or former civil partner.
3. The Insolvency Act 1986 - Section 283A
Section 283A applies to those cases where a bankruptcy order was made on a petition presented on or after 1 April 2004, where the bankrupt has an interest in a dwelling-house that may be either solely or jointly owned. Any dwelling-house to which this section applies must be the sole or principal residence of the bankrupt, the bankrupt’s spouse or former spouse, civil partner or former civil partner, at the date of the bankruptcy order. If that is the case, the trustee has a 3 year period to deal with the bankrupt’s interest in that property. If the trustee does not deal with the interest within 3 years of the date of the bankruptcy order it will automatically re-vest in the bankrupt. There are limited exceptions to this time period which are covered in paragraph 7.
On occasion, the bankrupt may have an interest in other residential properties which cannot be considered as his or her family home, and will not be subject to the provisions of section 283A. In such cases, the interest does not have to be realised within the 3 year timescale and will remain vested in the official receiver or insolvency practitioner (IP) trustee until they are dealt with by him or her.
4. What is meant by ‘the family home’?
For the purposes of the EA2002, the family home is described as a property or a dwelling-house, and should be taken to include both freehold and leasehold titles. A ‘dwelling-house’ is further defined as any building or part of a building which is occupied as a dwelling and any yard, garden, garage or outhouse belonging to the dwelling-house and occupied with it, and which is considered to be the sole or principal residence of either:
a. the bankrupt
b. the bankrupt’s spouse
c. the bankrupt’s former spouse
d. the bankrupt’s civil partner
e. the bankrupt’s former civil partner
at the date of the bankruptcy order. It is possible that a bankrupt may have an interest in more than one dwelling-house under section 283A. A bankrupt could have an interest in several properties, including for example, one which he or she occupies, another occupied by an estranged spouse or estranged civil partner, or one occupied by a former spouse or former civil partner. If the official receiver as trustee failed to take any action in respect of any of those dwelling-houses, they would re-vest in the bankrupt at the end of the 3 year period, (for exceptions see paragraph 7). The provisions of section 283A do not apply to partners or co-habitees, (see note a).
Once the bankrupt’s interest in a property has been established, the official receiver as trustee should take steps to deal with it at an early stage in the administration, even if the interest is of low value or in negative equity. The bankrupt’s interest in the dwelling-house vests in the trustee immediately on his or her appointment.
5. Form MP1 and the low cost Property Conveyancing Scheme
The official receiver as trustee should send form MP1, LOIS (DO73) – ‘Letter to the bankrupt, and/or co-owner of a property inviting an offer to purchase the bankrupt’s interest in that property from the Official Receiver’.
If the MP1 letter option selected relates to a jointly owned property, it will draw the bankrupt and co-owner’s attention to the Service’s low cost Property Conveyancing Scheme operated by TLT solicitors of Bristol for a fixed fee. See CHM part – Sale of Bankrupt’s Interest in jointly owned property. Use of the low cost Property Conveyancing Scheme should ensure that a bankrupt’s beneficial interest in a jointly owned property can be transferred, usually with the transfer of the legal title, out of the bankrupt’s name, without incurring excessive costs.
With regard to the procedure for dealing with solely owned properties, see Case Help Manual (CHM) part – Sale of Bankrupt’s Interest in solely owned property.
6. Options for dealing with the property
In order to deal with bankrupt’s interest in a property that falls under section 283A, within 3 years the trustee may:
a. sell the bankrupt’s interest to a third party or back to the bankrupt
b. apply for an order of sale, although it is not anticipated the official receiver as trustee will make such application
c. apply for an order of possession, again, it is not anticipated that the official receiver as trustee will make such application
d. apply to the court for a charging order against the property, see TM Chapter 33 Annex 2 – Charging Orders under section 313 of the Insolvency Act 1986 and CHM part – Charging Orders under section 313 of the Insolvency Act 1986.
e. reach a formal agreement with the bankrupt that he or she will incur a specified liability to the estate in consideration of which the interest in the property will not form part of the bankruptcy estate, however, it is not anticipated that the official receiver will enter into such agreements
f. if the official receiver is trustee, send notice to the bankrupt that he or she considers that the continued vesting of the property in the estate is of no benefit to creditors, or early re-vesting would facilitate a more efficient administration of the bankrupt’s estate. In this case the property will re-vest one month from the date of the notice.
Charging orders will only be pursued as a last resort due to the costs involved in making such an application to the court and maintaining the case throughout the ‘life’ of the charge.
7. Exceptions to the three year period
a. Where a bankrupt has not disclosed his or her interest in a dwelling-house within the first 3 months from the date of the bankruptcy order, the 3 year timescale which the trustee has to deal with a bankrupt's interest, will begin with the date on which the official receiver or other trustee becomes aware of the property.
b. In exceptional circumstances, the trustee may apply to the court to extend the 3 year period. It is anticipated that such applications will be rare but may be appropriate in instances where, for example, the bankrupt discloses a property but withholds necessary information causing a delay in the procedure, or the bankrupt has vacated the property but despite the reasonable efforts of the trustee the sale is likely to be delayed beyond the 3 year period.
c. The official receiver or other trustee has sent notice to the bankrupt that he or she considers that the continued vesting of the dwelling-house in the bankrupt’s estate will be of no benefit to creditors, or that re-vesting will enable a more efficient administration of the bankrupt’s estate.
In cases of a property with equity where the realisation is likely to be protracted (usually, this will be where the official receiver is not aware of any willing purchaser for the property), the official receiver should seek the appointment of an IP as trustee either by a meeting of creditors, see CHM part – Meetings - Calling a meeting or an appointment by the Secretary of State, see CHM part – Insolvency Practitioners - Appointment by the Secretary of State.
For general guidance on matters to be considered see TM, Chapter 17, paragraph 17.3.
The appointment of a trustee may also be appropriate, where there are other assets of a complex nature in the case, or where there has been a request from creditors for the appointment of a trustee other than the official receiver see CHM part – Meetings - Requisitioned Meetings.
In cases that are 2 or more years old in which the principal potential asset is an interest in a dwelling-house, which at the date of the bankruptcy order was the sole or principal residence of the bankrupt, his or her spouse or former spouse, civil partner or former civil partner, the official receiver can apply for a Secretary of State appointment of the next IP on the local office rota, without the need to refer back to creditors. See TM, Chapter 17, paragraph 17.51.
9. Transfer of cases to a Regional Trustee/Liquidator Unit (RTLU)
Where the equity is insufficient to attract an IP, (the amount is not set at any particular level and would vary depending on local and general circumstances), the case should be transferred to the relevant RTLU.
Where there is equity and a willing purchaser and, therefore, the realisation of the property is not likely to be protracted, such cases should also be transferred to the RTLU.
For further information see CHM part – Long Term Assets and the OROS document Protocol Governing the relationship between ORs and RTLUs.
Where the value of the bankrupt’s interest in a dwelling-house to which section 283A applies is below £1000, the interest is considered to be in a ‘low value home’. The trustee should not make an application to court for an order of sale, possession or for a charge on a low value home, as such applications will be dismissed by the court.
The bankrupt’s interest in a low value home is not excluded from his or her estate and the details of the asset should be passed to the relevant RTLU. The RTLU will review the position 2 years 3 months from the date of the bankruptcy order or 2 years 3 months from the date the official receiver first became aware of the property.
11. Notice to interested parties where a dwelling-house is identified as ‘the sole or principal residence of the bankrupt etc’
November 2008
When a property has been identified as the sole or principal residence of the bankrupt, his or her spouse or former spouse, civil partner or former civil partner, the official receiver as trustee must send form BHNOT, LOIS (DO73) – ‘Notice to interested parties of dwelling house - Form 6.83’ to each of those applicable, giving notice that the bankrupt's interest in the property forms part of the bankruptcy estate. Form BHNOT must also be sent to any mortgagee(s) or charge-holders. This should be done as soon as possible after the official receiver establishes that the dwelling-house is the sole or principal residence. Guidance Notes are attached to the notice explaining the consequences of section 283A.
In every case, notice of the bankruptcy order must be given to the Chief Land Registrar as part of the initial procedure by sending form LRRABO, LOIS (DO73) – ‘Land Registry, register BO or amend registration’. See CHM part – Initial Notices and Letters.
12. Registration of a Bankruptcy Restriction
When a property is solely owned a bankruptcy restriction must be registered by HM Land Registry and should follow the notification to them of the bankruptcy order (form LRRABO). This is covered in more detail, as is the procedure in the event that a bankruptcy restriction has not been registered, in the CHM part – Freehold Property: Solely owned - Registration of a Bankruptcy Restriction.
13. Registering a Form J Restriction
The Land Registry does not allow a bankruptcy restriction to be entered in the Register against the title of a property that is jointly owned. In cases where the bankrupt co-owns the property with another, see CHM part – Freehold Property: Jointly owned - Registering a Form J Restriction.
14. Mortgaged dwelling-house where no surplus is expected
Generally, where the dwelling-house is subject to a mortgage and no surplus is expected, the mortgagee may be left to deal with the bankrupt's interest but should be requested to inform the official receiver as trustee, of any attempted dealings and account for any surplus. If the mortgagee has not realised their security by the end of the 3 year period, (or later if one of the exceptions in paragraph 7 apply), then the bankrupt's interest in the dwelling-house will automatically re-vest in the bankrupt without conveyance, assignment or transfer. To avoid this re-vesting the official receiver as trustee may take any of the courses of action listed in paragraph 6.
In most instances the review is likely to be undertaken by an RTLU, and will commence at 2 year 3 months after the making of the bankruptcy order, and is applicable in all cases.
a. Sufficient equity to attract an IP
Following the review, if there is equity in the property which is sufficient to attract an IP, usually where the RTLU is not aware of any willing purchaser, a Secretary of State appointment of an IP trustee should be sought. TM, Chapter 17, paragraph 17.3 provides general guidance on the matters to be considered when considering whether the appointment of an IP as trustee is appropriate. See also paragraph 8.
The appointment of an IP trustee may also be appropriate where there are other assets of a complex nature in the case, (although this is unlikely to be the case at the review stage), or where there has been a request from creditors for the appointment of a trustee other than the official receiver. Where there is a willing purchaser the RTLU will deal with the sale of the property interest.
b. Insufficient equity to attract an IP
If, at the review stage there is insufficient equity to attract an IP, the official receiver should make enquiries as to whether the bankrupt or a third party would be interested in purchasing the interest by sending form MP1, see paragraph 5. If it is not possible to transfer the interest and the bankrupt's interest is valued in excess of £1000, the official receiver should consider making application for a charging order, (see paragraph 6 and note c).
c. Bankrupt’s interest in the family home is of low value
At the time of the review, it may transpire that the bankrupt's interest in the family home has not increased in value, the interest is of low value, (£1000 or less), the official receiver has not been able to transfer his or her interest in the dwelling-house to a third party and has not taken any steps outlined in paragraph 7 to deal with the dwelling-house. Should this be the case, the interest in the property will re-vest in the bankrupt at the end of 3 years, from the date of the bankruptcy order, unless one of the exceptions in paragraph 7 applies.
After completing the review, the official receiver may consider that early re-vesting is appropriate, i.e. before the end of the relevant 3 year period commencing with the bankruptcy order, or the date that the official receiver became aware of the property. For more information on early re-vesting, see paragraph 18.
The bankrupt's interest in a dwelling-house can be valued using a variety of methods including:
a. bankrupt's valuation
b. local knowledge
c. information from mortgagee
d. use of the internet
e. drive-by valuation
f. professional valuation, i.e. chartered surveyor
g. estate agent
The official receiver should decide which form of valuation is appropriate on a case by case basis. In any sale, that the official receiver attempts he or she should ensure that there is a professional valuation of the dwelling-house, unless a recent independent valuation has been obtained and the official receiver is satisfied that it is accurate.
Where the interest in the dwelling-house re-vests in the bankrupt it will occur without the need for any conveyance, assignment or transfer. The official receiver must take one of the following actions dependent on whether or not the dwelling-house is on land registered at the Land Registry.
a. Registered land
When the bankrupt's interest in a property on registered land re-vests, the official receiver must make application to the Chief Land Registrar to amend the register(s) within 5 business days of the interest re-vesting. The application should be made on form BHCERT, LOIS (DO73) – ‘Bankrupt’s home - certificate of re-vesting’ and Land Registry form RX4, which is available from HM Land Registry's website www.landregistry.gov.uk.
The official receiver is also required to notify the bankrupt, his or her spouse or former spouse, civil partner or former civil partner (as applicable) and others with an interest in the property, (e.g. mortgagee or other charge-holders) that the application has been made. Such notification(s) will be made using form BHLET, LOIS (DO73) – ‘Letter to bankrupt advising of re-vesting’ (amended as required), and should be sent within 7 days of the interest re-vesting.
b. Unregistered land
When the bankrupt's interest in a property on unregistered land re-vests, the official receiver must send form BHLET enclosing a copy of Form BHCERT to the bankrupt, his or her spouse or former spouse, civil partner or former civil partner (as applicable) and others with an interest in the property, e.g. mortgagee or other charge-holder, informing them of the re-vesting. Such notification(s) should be sent within 7 days of the interest re-vesting.
After completing the review at 2 years and 3 months the official receiver may consider sending notice to the bankrupt on form BHREV, LOIS (DO73) – ‘Letter to bankrupt advising of re-vesting, re-vesting in one month’. This may be done if the official receiver considers that the continued vesting of the property in the bankrupt's estate is of no benefit to creditors or that the re-vesting to the bankrupt will facilitate a more efficient administration of the bankrupt's estate. In such cases, the property would re-vest back in the bankrupt one month from the date stated on form BHREV.
Notes:
a For the purposes of EA2002 section 261(8), ’spouse’ should be interpreted as the bankrupt’s marital or former marital partner. This does not include an estranged partner or co-habitee even if there are children of the relationship living with or cared for by the estranged partner or co-habitee.
b Where a property re-vests back in the bankrupt and the official receiver has taken no action to deal with an endowment policy that endowment policy will not re-vest but remains part of the bankruptcy estate.
Where can I find out more?
Enterprise Act 2002:
Section 261 – Bankrupt’s home
Insolvency Act 1986:
Section 283A – Bankrupt’s home ceasing to form part of the estate
Section 313A – Low value home: application for sale, possession or charge
Section 385 – Miscellaneous definitions (includes the definition of a dwelling house)
Insolvency Rules:
Rule 6.237 – Bankrupt’s Home – Notification of property falling within section 283A
Rule 6.237A – Application in respect of the vesting of an interest in a dwelling-house (registered land)
Rule 6.237B – Vesting of bankrupt’s interest (unregistered land)
Rule 6.237C – The court may substitute for the period of three years such longer period as the court thinks just and reasonable in all the circumstances of the case
Rule 6.237CA – Vesting of bankrupt’s estate – substituted period
Technical Manual:
Chapter 17 – Appointment of Liquidators and Trustees part 1, paragraph 17.3
Chapter 17 – Appointment of Liquidators and Trustees part 5, paragraph 17.51
Chapter 33 – Part 1 paragraph 33.5, Interpretation of this part/definitions - ‘dwelling-house’
Chapter 33 Annex 2 – Charging Orders under section 313 of the Insolvency Act 1986
Chapter 33 Annex 3 – Enterprise Act 2002 - Transitional Provisions on the Family Home
Case Help Manual:
Charging Orders under section 313 of the Insolvency Act 1986
Freehold Property: – Solely owned - Registration of a Bankruptcy Restriction
Freehold Property: – Jointly owned - Registering a Form J Restriction
Insolvency Practitioners – Appointment by the Secretary of State
Meetings – Requisitioned meetings
Sale of Bankrupt’s Interest in jointly owned property
Sale of Bankrupt’s Interest in solely owned property
OROS Document:
Protocol Governing the relationship between ORs and RTLUs
Notices:
Technical T20-05 - Civil Partnership Act 2004
Technical T38-06 - Secretary of State appointments in bankruptcy cases with an interest in a property
Technical T41-06 - Guidelines for Secretary of State appointments – revision of guidance in relation to bankruptcy cases
LOIS Workbook:
Transfer of cases to the RTLUs
Bankruptcy leaflet
What will happen to my home?
Available from official receiver offices or online at www.insolvency.gov.uk ‘publications’
Forms to be used
BHCERT – Bankrupt's home - certificate of re-vesting
BHLET – Letter to bankrupt advising of re-vesting
BHNOT – Notice to interested parties of dwelling-house - Form 6.83
BHREV – Letter to bankrupt advising of re-vesting - re-vesting in one month
LRRABO – Land Registry, register BO or amend registration
MP1 – Letter to the bankrupt and/or the co-owner of a property inviting an offer to purchase the bankrupt’s interest in that property from the official receiver
Land Registry form RX4 – Available from HM Land Registry's website, www.landregistry.gov.uk
Click HERE for flowchart (1) – The Family Home - Up to the review stage
Click HERE for flowchart (2) – The Family Home - Review stage to conclusion
Procedure
1 Property is identified as the principal residence of the bankrupt, bankrupt's spouse or former spouse, civil partner or former civil partner.
2 Update LOIS, (CA15) fully with all known details relating to the property or properties, such as address, joint owner(s) if applicable and mortgagees etc.
3 A valuation of the property or properties will need to be made. The examiner will give instructions on how this should be done, e.g. by website valuation, drive by valuation, by relying on the value given by the bankrupt or as stated in the mortgagee letter etc.
4 When the value of any relevant property is known and the bankrupt’s interest has been assessed, speak with the examiner regarding options. See Procedure step 5, and action accordingly.
5 Where there is equity in the property and the circumstances outlined in paragraph 8 above are appropriate, the appointment of an IP trustee should be considered by calling a meeting of creditors or making application for a Secretary of State appointment. See CHM part – Meetings - Calling a Meeting or CHM part – Insolvency Practitioners - Appointment by the Secretary of State.
6 In cases where the official receiver is trustee, 2 copies of the appropriate form MP1 'Offer to purchase' letter must be sent to the bankrupt. This form should also be sent to any co-owner(s) where the property is jointly owned. The official receiver should seek to obtain by return a signed copy of the letter(s) by way of acknowledgement.
7 Where the official receiver remains trustee the decision on whether or not the case can be transferred to an RTLU no longer depend upon the investigation decision. Any case that is already marked as ‘NFI/NFE’ should be transferred to the appropriate RTLU as soon as possible. Where the property is jointly owned a Form J Restriction needs to be registered at the Land Registry. If the property is solely owned ensure that a bankruptcy restriction has been registered with the Land Registry.
8 Form BHNOT ‘notice to interested parties’ must be sent to the bankrupt, his or her spouse or former spouse, civil partner or former civil partner and any mortgagee(s) or other charge-holder(s). Guidance Notes are attached to this notice.
9 Where an offer to purchase the official receiver's interest in a property is received please follow the procedure in the relevant CHM part, Sale of solely owned property or Sale of the bankrupt's interest in jointly-owned property. If the sale of the interest is likely to be protracted or there are other complex asset related matters, consider an SoS appointment for an IP to become trustee. See CHM part Appointment of Trustees and Liquidator by the Secretary of State.
10 Where there has been no offer to purchase the official receiver's interest in a property, the case must be reviewed (usually by an RTLU), 2 years and 3 months from the date of the bankruptcy order, or 2 years and 3 months from the date that the official receiver became aware of it (as the 3 year period in which the interest must be dealt with also runs from this date).
Review Stage
11 An up-to-date valuation of the property must be obtained, as in step 3 the examiner will give instructions on how this is to be done. Current mortgage statements must be obtained and any outstanding mortgages and other charges must also be taken into account when considering this.
12 Where the value has increased significantly and the circumstances outlined in paragraph 15 above are appropriate, a Secretary of State application should be sought for an IP appointment. See CHM part – Insolvency Practitioners - Appointment by the Secretary of State.
13 Where there is minimal equity in a jointly owned property, the low cost Property Conveyancing Scheme should be offered to both the bankrupt and the co-owner(s) by sending form MP1. Similarly, as with solely owned property the offer to purchase the official receiver's interest should be made to the bankrupt using form MP1, however, the text infill in this letter option does not include the Property Conveyancing Scheme as it is not available with solely owned properties.
14 If an offer to purchase the official receiver's interest is received please follow the procedure in the relevant CHM part – Sale of Bankrupt’s Interest in solely owned property or Sale of the Bankrupt's Interest in jointly owned property.
15 If there is still low value equity, no equity or negative equity in the property, the official receiver will need to decide whether or not early re-vesting is appropriate. The examiner will decide this.
Early re-vesting
16 Where the bankrupt's interest re-vests early, the official receiver should send form BHREV informing the bankrupt that he or she considers that the continued vesting to be of no benefit to the bankruptcy estate or that re-vesting will facilitate a more efficient administration of the estate. The bankrupt's interest re-vests one month from the date on form BHREV.
17 Where the property to be re-vested is on registered land, within 5 days of the re-vesting, application should be made to the Land Registry to amend the register(s) using Land Registry Form RX4, accompanied by a copy of form BHCERT, (a certificate stating that the interest has vested in the bankrupt).
18 Also, where property is on registered land, within 7 days of the application to Land Registry, form BHLET must be sent to the bankrupt and every person who has an interest in the property, (such as the bankrupt's spouse or former spouse, civil partner or former civil partner) and all mortgagees and other charge-holders.
19 Where the property is on unregistered land, form BHLET must be sent to the bankrupt, the bankrupt's spouse or former spouse, civil partner or former civil partner, mortgagees and charge-holders and every other person who has an interest in the property. A copy of form BHCERT should be attached to each notice.
20 If the bankrupt's interest in the property is over £1,000 and no offer to transfer the interest has been received or accepted, the official receiver may consider applying for a charging order. This should only happen as a last resort.
Re-vesting after 3 years
21 At the end of the relevant 3 year period, if no action is taken by the trustee, the interest will automatically re-vest in the bankrupt. Where the property is on registered land, within 5 business days of the re-vesting, application should be made to the Land Registry to amend the register(s) using form RX4 and form BHCERT, (a certificate stating that the interest has vested in the bankrupt).
22 Also, where property is on registered land, within 7 days of the application to Land Registry, form BHLET must be sent to the bankrupt and every person who has an interest in the property, such as the bankrupt's spouse or former spouse, civil partner or former civil partner and all mortgagees and charge-holders.
23 Where the property is on unregistered land, form BHLET must be sent to the bankrupt, bankrupt's spouse or former spouse, civil partner or former civil partner, mortgagees, charge-holders and every other person who has an interest in the property. A copy of form BHCERT should be attached to each notice.