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PART 1
May 2008
THE ENTERPRISE ACT 2002 AND THE FAMILY HOME
This part should be applied in all cases where section 283A applies and the bankruptcy petition was presented on or after 1 April 2004. (Details of the provisions of section 283A are given in paragraph 33.7) The official receiver should also have regard to the guidance in Parts 2 to 8 of this chapter.
33.4 Background - Enterprise Act 2002 and the family home
The EA02 amended the Insolvency Act 1986 by introducing section 283A, which contained provisions affecting the bankrupt's family home. The aim of the provisions was to:
(a) Provide certainty as to the time-scale within which homes may be realised by the trustee striking a balance between the interests of creditors, the bankrupt and his/her family [note 1];
(b) Support the concept of a fresh start after the expiry of the 3 year period during which the official receiver has the opportunity to deal with the bankrupt's interest in a dwelling-house; and
(c) Help reduce the stigma of bankruptcy.
33.5 Interpretation of this part/definitions (amended December 2008)
The guidance in this part should be followed where all conditions in (a) to (c) of paragraph 33.7 are met.
References in this part to property or dwelling-house (see paragraph 33.5B) should be taken to include both freehold and leasehold titles, such titles being held solely by the bankrupt or jointly with another unless otherwise stated.
33.5A Definition of bankrupt's spouse or former spouse (amended December 2008)
Bankrupt’s spouse or former spouse is not defined by the Insolvency Act 1986 and 'spouse' should be interpreted as the bankrupt's marital or former marital partner. This does not encompass a cohabitant/partner even if there are children of the relationship living with or cared for by the cohabitant/partner. Following the introduction of the Civil Partnership Act 2004 in December 2005, a civil partner or former civil partner should also be read alongside spouse or former spouse.
Marriage is a legal process under the Marriages Acts, the latest of which is the Marriage Act 1994. A "spouse" (or husband or wife) is an individual's partner in marriage. Any reference in the Insolvency Act 1986 to "spouse" can only refer to a man or woman who is the individual's partner in a legal marriage; and they must be of the opposite gender. A former spouse is someone to whom you were married but the marriage has been formally dissolved under Matrimonial Causes Act 1973.
Civil partnership is also a legal process and a "civil partner" can only refer to a man or woman who is the individual's partner in that arrangement (and they must be of the same gender). Like a marriage, a civil partnership can only be dissolved by the courts, rendering each partner a "former civil partner". The legislation is set out in the Civil Partnerships Act 2004.
It is a common misconception, but there is no such thing in English law as a "common law wife" (or husband) and couples who co-habit (whether of the same sex or not), acquire no protection under the law through that relationship.
33.5B Definition of a dwelling-house (amended December 2008)
A dwelling house is 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 [note 1].
33.6 Bankrupt’s home ceasing to form part of estate (amended February 2011)
Section 283A applies where a property is considered to be a dwelling-house, which at the date of the bankruptcy order was the sole or principal residence of;
a) the bankrupt,
b) the bankrupt’s spouse or civil partner, or
c) a former spouse or civil partner of the bankrupt [note 2].
The official receiver, as trustee, has 3 years beginning with the date of the bankruptcy order within which to deal with any qualifying property. Failure to do so will result in that interest re-vesting in the bankrupt [note 3]. For more details and exceptions see paragraphs 33.9, 33.14 and 33.17-17A.
33.7 When section 283A applies
The provisions of section 283A apply in all cases where:
(a) The individual was adjudged bankrupt on a petition presented on or after 1 April 2004;
(b) The bankrupt has an interest in a dwelling-house which is either solely or jointly owned; and
(c) That dwelling-house was the sole or principal residence of the bankrupt, the bankrupt's spouse or civil partner, former spouse or former civil partner at the date of the bankruptcy order.
Unless all of the above criteria are met, the bankrupt's interest in the property will not re-vest in the bankrupt under section 283A(2). In those circumstances the property should be dealt with following the guidance in Parts 2 – 8 of this chapter except where the bankruptcy petition was presented before 1 April 2004, when reference should be made to Annex 3 of this chapter.
The official receiver should also have regard to the provisions of sections 335A, 336 and 337 (see Part 8).
33.8 Initial action to be undertaken by official receiver
When determining and dealing with a bankrupt's interest in a dwelling–house which is the sole or principal residence of either the bankrupt, the bankrupt's spouse or civil partner, former spouse or former civil partner, the official receiver must:
(a) Establish the nature of the bankrupt's interest in a dwelling-house (see Part 2 on establishing the bankrupt's interest in the property and Part 3 on factors affecting the value of the bankrupt's interest);
(b) Consider whether the bankrupt has an interest, or beneficial interest in a dwelling-house which is in the sole name of another (see Part 2, paragraph 33.48);
(c) Have regard to the provisions of the Family Law Act 1996 (see Part 4);
(d) Obtain a current valuation of the bankrupt's interest in a dwelling-house (see paragraph 33.16); and
(e) Protect the bankrupt's interest in a dwelling-house (see Part 5)
33.9 Bankrupt's home vesting in trustee and when it will re-vest (amended February 2011)
The bankrupt's estate vests in the trustee immediately on his/her appointment [note 4]. The bankrupt's interest in a dwelling-house to which section 283A applies will re-vest in the bankrupt;
(a) 3 years from the date of the bankruptcy order [note 3]; or
(b) earlier if the official receiver, or insolvency practitioner, acting as trustee sends notice to the bankrupt that he/she considers that the continued vesting is of no benefit to creditors or re-vesting would facilitate a more efficient administration of the estate [note 5]. (See paragraph 33.17(c) and 33.17A), but
(c) if the bankrupt does not inform the official receiver, or any insolvency practitioner acting as trustee, of his/her interest within 3 months of the bankruptcy order, then the dwelling-house will not re-vest until the expiry of 3 years after the official receiver or other trustee becomes aware of the bankrupt’s interest [note 6] (unless paragraph 33.17(c) applies).
33.10 Bankrupt's home vesting in trustee and re-vesting in bankrupt
The property re-vests without conveyance, assignment or transfer unless the trustee has taken action to dispose of or otherwise deal with the bankrupt's interest in it.
The 3 year period may be extended by the court [note 7] (see paragraph 33.37).
The bankrupt’s interest in the dwelling-house may be in the legal estate or a beneficial interest. For an explanation of these terms, refer to paragraph 33.44.
The provisions of section 283A apply only to the sole or principal residence of the bankrupt, his/her spouse or civil partner, former spouse or former civil partner at the date of the bankruptcy order. It should be noted that the bankrupt's interest in any residential properties falling outside section 283A will remain vested in the official receiver or insolvency practitioner trustee until they are dealt with by him/her. Such properties should be dealt with in accordance with Parts 2 to 8 of this chapter.
33.11 Notice when section 283A applies
When a dwelling-house has been identified as the sole or principal residence of the bankrupt, the bankrupt's spouse or civil partner, former spouse or former civil partner, the official receiver, as trustee, must send Form 6.83 [note 8] to each of them notifying them that the interest in the property forms part of the bankrupt's estate. The official receiver should endeavour to do this as soon as possible after becoming aware that the dwelling-house is the sole or principal residence [note 9]. If the dwelling-house is registered land the title number should be included on Form 6.83 [note 10].
The official receiver should also notify the mortgagee and any other third parties (other than the spouse or civil partner, former spouse or former civil partner) that have an interest in the dwelling-house that the bankrupt's interest has vested in the trustee. (Form 6.83 may also be used for this purpose)
33.12 Bankrupt with an interest in more than one property
It is possible that a bankrupt may have an interest in more than one dwelling-house under section 283A. A bankrupt could, for example have an interest in a dwelling-house which he/she occupies him/herself, a dwelling-house occupied by an estranged spouse or civil partner and a dwelling-house occupied by a former spouse or civil partner. If the official receiver fails to take any action in respect of any of the dwelling-houses, then those dwelling-houses would all re-vest in the bankrupt at the end of the 3 year period (or earlier/later if any of the exceptions in paragraph 33.17 apply).
Where a dwelling-house re-vests in the bankrupt and the official receiver has taken no action to deal with an endowment policy, that endowment policy does not re-vest but remains part of the bankruptcy estate.
Endowment policies should be dealt with in accordance with paragraphs 33.81 to 33.83 in Part 3.
33.14 Dwelling-house ceasing to form part of estate (amended February 2011)
The bankrupt's interest in a dwelling-house, that falls to the trustee to deal with under section 283A, will cease to form part of the bankruptcy estate and will re-vest in the bankrupt at the end of the 3 year period specified in section 283A(2) unless paragraph 33.17 applies or one of the following events occurs before that date:
(a) The trustee realises (for definition of ‘realise’ see paragraph 33.14A) the interest in the dwelling-house [note 11] e.g. by the sale of the interest in the dwelling-house (see paragraphs 33.22 to 33.27 where the dwelling-house is solely owned and paragraphs 33.28 to 33.35 where it is jointly owned);
(b) The trustee applies for an order for sale in respect of the dwelling-house [note 12]. (It is not anticipated that the official receiver will make such applications.);
(c) The trustee applies for an order for possession of the dwelling-house [note 13]. (It is not anticipated that the official receiver will make such applications.);
(d) The trustee applies for a charging order in respect of the bankrupt's interest [note 14] (see paragraph 33.36 and Annex 2); or
(e) The trustee agrees with the bankrupt that the bankrupt shall incur a specified liability to the estate in consideration of which the interest will cease to form part of his/her estate [note 15]. It is not envisaged that the official receiver will enter into agreements with the bankrupt under section 283A(3)(e).
(f) The official receiver, as trustee, sends notice to the bankrupt that he/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 [note 5]. An early re-vesting of the property interest in the bankrupt should only be exercised in certain circumstances (see paragraph 33.17A). In this case the property re-vests 1 month from the date of such notice (see paragraphs 33.25 and 33.26 for solely owned property, and paragraphs 33.31 and 33.32 for jointly owned property).
(See paragraph 33.17 for other exceptions to the 3 year period applying.)
33.14A Definition of to realise in the context of section 283A
The case of Lewis v Metropolitan Property Realisations Ltd [2009] EWCA Civ 448; [2010] 2 W.L.R 615 (CA (Civ Div)) considered the meaning of the word ‘realise’ in the context of section 283(A).
Their Lordships, when hearing the appeal by the Lewises reasoned that “realise”, for the purposes of s.283(A), meant to turn into money now, not later. This would mean that an assignment for deferred contingent consideration would not amount to a realisation under s.283A and would not prevent the property from re-vesting.
33.15 Action by the official receiver when dwelling house ceases to form part of the estate
If 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 as trustee must inform the bankrupt, bankrupt's spouse or civil partner, and former spouse or former civil partner (where the dwelling-house is their sole or principal residence), and any person claiming an interest in the dwelling-house or under any liability in respect of it, of the re-vesting and must make application to the Chief Land Registrar, Land Registry, to amend the register of proprietorship where the dwelling-house is on registered land [note 16]. Guidance is given in paragraphs 33.26 and 33.27 for solely owned property and paragraphs 33.32 and 33.33 for jointly owned property on the notices to be given when the interest re-vests in the bankrupt.
33.16 Valuation of dwelling-house (amended February 2011)
The bankrupt's interest in a dwelling-house can initially be valued using a variety of methods including:
(a) Bankrupt's valuation;
(b) Local knowledge;
(c) Information from mortgagee;
(d) Use of internet (for example, www.upmystreet.com/properties/house-prices-in-uk.html or www.nationwide.co.uk);
(e) Drive-by valuation; and
(f) Professional valuation.
The official receiver should decide which form of valuation is appropriate on a case-by-case basis. Unless there is sufficient equity which is likely to result in the sale of the bankrupt’s interest in the property (see paragraphs 33.19 – 33.22), the official receiver should not seek to confirm the bankrupt’s estimate of the value of the property. At the 2 year 3 month review stage a current valuation should be obtained if no valuation has been undertaken within the previous 6 months (see paragraphs 33.25, 33.31, 33.34 and 33.35).
33.17 Exceptions to the 3 year period applying (amended February 2011)
The 3 year period specified in section 283A(2) will not apply if:
(a) The bankrupt does not inform the official receiver or the trustee of his/her interest in a dwelling-house within the period of 3 months from the date of the bankruptcy order - in this case the period of 3 years begins on the date on which the official receiver or trustee becomes aware of the bankrupt's interest [note 6]; or
(b) The court substitutes for the period of 3 years a longer period [note 17] (see paragraph 33.37); or
(c) The official receiver or other trustee has sent notice to the bankrupt that he/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 facilitate a more efficient administration of the bankrupt’s estate. Where the trustee sends such notice, the property re-vests 1 month from the date of the notice [note 5
]. The official receiver, when acting as trustee, will conduct a review before deciding whether to issue such notice, which may, in certain circumstances, require the regional director’s permission before issue (see paragraph 33.17A). (See paragraph 33.24 for solely owned property and paragraph 33.30 for jointly owned property.)33.17A Exceptional circumstances for early re-vesting at initial stages (inserted February 2011)
On initial review, the official receiver, as trustee, has discretion to effect an early re-vesting of the bankrupt’s interest in a property in the following tightly constrained circumstances[note 5]:
(a) Where the property is in negative equity and there are second or further charges such that the official receiver, as trustee, can determine that there is no reasonable prospect of a surplus becoming available from the property within the three year period.
(b) Where the property is in negative equity with no second or subsequent charges, but where the official receiver, as trustee, determines there is no reasonable prospect of a surplus becoming available within the three year period. This discretion may only be exercised on a case by case basis with the approval of the regional director prior to issuing the notice effecting early re-vesting [note 17A].
33.18 Dwelling-house with equity
In cases with equity where the realisation of a property 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 insolvency practitioner as trustee – whether by a meeting of creditors (see Chapter 16) or via an appointment by the Secretary of State (see paragraphs 17.47 to 17.68) and arrange for handover of the estate as soon as possible. Paragraph 17.3 of Chapter 17 provides general guidance on the matters to be considered when considering whether the appointment of a trustee is appropriate.
Other circumstances where the appointment of a trustee may be appropriate would be where there are other assets of a complex nature in the case, or where there has been a request from creditors (see paragraphs 16.16 to 16.24) for the appointment of a trustee other than the official receiver.
33.19 Dwelling house with equity – transfer of case to RTLU (amended February 2011)
Where the bankrupt’s interest in a property is significant and there is a willing purchaser and, therefore, the realisation of the property is not likely to be protracted, the case should be transferred to RTLU for realisation of the interest.
If the official receiver is appointed as trustee (either pending an appointment via the Secretary of State rota or pending transfer to the RTLU), form BHNOT should be sent to the bankrupt and any joint owner.
The fact that the case is on the investigation register need not prevent the case from being transferred to the RTLU as there is facility on ISCIS for the administrative and investigatory parts of the case to be separated.
33.20 Low value home - application for sale, possession or charge (amended February 2011)
Where a bankrupt’s interest in a dwelling-house has a low value the marginal benefit to creditors from its realisation is likely to be outweighed by the suffering imposed upon the bankrupt, bankrupt’s spouse or civil partner, bankrupt’s former spouse or civil partner from the loss of the home. Section 313A came into effect on 1 April 2004 and clarifies what is meant by a low value home.
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' [note 18] and the trustee must not make an application to court for an order for sale, possession or for a charge on it as any such application will be dismissed by the court. Where an application is dismissed, the interest will re-vest automatically in the bankrupt unless the court orders otherwise [note 19]. Where the official receiver is trustee, it is not anticipated that he/she would make applications for sale or possession in any event.
Where the bankrupt’s interest in the property is worth less than £1000 , the MP1 letter should not be sent,
33.21 Low value homes – review by RTLU (amended February 2011)
The bankrupt's interest in a property, which is defined as a low value home for the purposes of section 313A (see paragraph 33.20), is not excluded from his/her estate and the details of the asset should be passed to the relevant RTLU who will review it 2 years and 3 months from the date of the bankruptcy order or 2 years and 3 months from the date the official receiver or other trustee, in exceptional circumstances, first became aware of the interest (where delayed disclosure has extended the date for re-vesting of the bankrupts interest - see paragraph 33.17).
Following the review by RTLU, if the official receiver, as trustee, does not make an application for a charging order because the value of the bankrupt's interest is below the £1000 level prescribed under section 313A(2), and does not take any of the other steps outlined in paragraph 33.14, then the dwelling-house will re-vest in the bankrupt 3 years after the date of the bankruptcy order [note 3] (unless one of the exceptions in paragraph 33.17 applies).
33.21A Offer to be in the interests of creditors to accept (inserted February 2011)
If an offer is received to purchase the bankrupt’s interest, any offer should clearly be in the interests of creditors to accept. In practice this will be where the bankrupt’s interest in a property exceeds £1000 (see paragraph 33.20).
It has been held that a bankrupt's creditors had an interest in an order for sale being made, regarding a property, notwithstanding that the entirety of the bankrupt's share in the net proceeds of sale might be swallowed up in defraying the expenses of the bankruptcy and it was in the interests of the creditors that the expenses of the bankruptcy be discharged as far as possible out of the bankrupt's assets. [note 19A]
33.21B Solely owned dwelling-house – bankrupt’s interest £1000 or less (inserted February 2011)
Where a dwelling-house is solely owned and the equity in it is minimal or negative (less than £1000 should be used as a guide figure see paragraph 33.20), form MP1 should not be sent. (For further information on the sale of solely owned property see Part 7 of this chapter.)
The case should be transferred to RTLU for review at the two year and three month point (see paragraph 33.23).
33.21C – Solely owned property – interest less than £1000- disability/caring responsibilities (inserted February 2011)
Where a bankrupt makes an approach to the official receiver, as trustee, requesting that his/her interest in the property be dealt with prior to the two year and three month review (see paragraph 33.25) in the exceptional circumstance that the extended uncertainty in determining the interest may exacerbate a disability (especially mental health related), or potentially cause a mental health related disability as the uncertainty could cause undue distress, the official receiver may consider selling the bankrupt’s interest in the property for a nominal value.
An example would be where a disabled bankrupt (or a bankrupt with caring responsibilities for a disabled person) may have made specific adaptions to their home in order to cope with the disability and the uncertainty with regard to their interest in that property may cause distress.
This discretion must only be exercised by the official receiver, as trustee, on a case by case basis. Similar provision should be considered for requests based upon caring responsibilities (including pregnancy and caring for young children) and age (65+), where the uncertainty could lead to mental health related concerns.
33.22 Solely owned dwelling-house – bankrupt’s interest greater than £1000 but insufficient to attract an insolvency practitioner appointment (amended February 2011)
Where the bankrupt’s interest in a solely owned property is greater than £1000 but is still minimal (£5000 should be used as a guide figure) (see paragraphs 33.20 -21A), consideration should be given by the official receiver, as trustee, to sending a letter to the bankrupt inviting an offer to purchase the bankrupt’s/trustee’s interest in that property from the official receiver, as trustee. Form MP1 should be sent for this purpose. If possible, a signature should be obtained to confirm that the bankrupt has received form MP1. At the same time the official receiver should send the notice to the mortgagee to account to the official receiver [note 20]. If an offer is received to purchase the bankrupt’s interest any offer should clearly be in the interests of creditors to accept (see paragraph 33.21A)
It should be made clear to the bankrupt that if a sale of the interest is not pursued, and if no other arrangements are made to transfer the legal title, then the official receiver, as trustee, may take action to deal with the dwelling-house at any point during the period of 3 years or such longer period as the court may order that the property vests in the trustee in bankruptcy [note 21] (see paragraph 33.37).
If the bankrupt has failed to acknowledge receipt of form MP1, a file note should be made recording how and on what date the official receiver requested the return of signed form MP1. Failure to obtain an acknowledgement should not delay release or discharge.
(For further information on the sale of solely owned property see Part 7 of this chapter.)
33.22A – Solely owned property with equity greater than £5000 (inserted February 2011)
Where the bankrupt’s interest in a property is significant (£5000 should be used as a guide figure), consideration should be given by the official receiver, as trustee, to sending a letter to the bankrupt inviting an offer to purchase the trustee’s interest in that property from the official receiver, as trustee. Form MP1 should be sent for this purpose. If possible, a signature should be obtained to confirm that the bankrupt has received form MP1. At the same time the official receiver should send the notice to the mortgagee to account to the official receiver [note 20].
Where an offer received by the official receiver is in the interests of creditors to accept (see paragraph 33.21A), and the realisation of the property is not likely to be protracted, the case should be transferred to RTLU for realisation of the property (see paragraph 33.19).
Where no reasonable offer is received, or the realisation of the property is likely to be protracted, or there are other assets where realisation is not straight forward, consideration should be given to seeking a Secretary of State insolvency practitioner appointment as trustee to deal with the bankrupt's interest in the property and the other assets, as the case may be (see Chapter 17 Part 5).
33.23 Role of RTLU – (amended February 2011)
Following the initial stages, the official receiver as trustee, should transfer the case to the RTLU who will;
(a) attempt to sell the beneficial interest and legal title either back to the bankrupt or to a third party introduced to the official receiver by the bankrupt, where the sale of the bankrupt’s interest is clearly in the interests of creditors (see paragraph 33.21A), or
(b) place the property on a register for review at a later point. The mortgagee may be left to deal with the bankrupt's interest in the mean time but should be requested to inform the official receiver of any attempted dealings and account for any surplus [note 20].
(For further information on dealing with property with minimal/no equity see Part 6 of this chapter and also paragraph 33.20 on dealing with low value homes.)
33.24 Solely owned property – need to review
If the official receiver is trustee and;
(a) the mortgagee has not realised their security in the dwelling-house; and
(b) the official receiver as trustee has not taken any steps to deal with the bankrupt's interest in the dwelling-house (as outlined in paragraph 33.14); and
(c) the bankrupt’s interest in the dwelling-house still vests in the trustee 2 years and 3 months from the date of the bankruptcy order or 2 years and 3 months from the date on which the official receiver first became aware of the bankrupt’s interest (where delayed disclosure has extended the date for re-vesting of the bankrupt’s interest [note 6] - see paragraph 33.17(a)), then
the bankrupt’s interest in the dwelling-house should be reviewed by the RTLU, at the 2 year and 3 month point detailed above as this should allow sufficient time for the bankrupt’s interest to be dealt with before the property automatically re-vests at the 3 year point [note 3].
33.25 Solely owned property – review process (amended February 2011)
At (or close) to the 2 year 3 month date a valuation of the property should be obtained by reference to an Internet valuation e.g. www.upmystreet.com or www.nationwide.co.uk/.../
(a) If the Internet valuation shows that there is likely to be significant negative equity (of at least £10,000 (below that figure a drive-by valuation is essential)), the re-vesting procedure should be commenced immediately, there being no need to wait until the 3 year time limit (see paragraph 33.26 below). The official receiver will need to exercise judgment in certain circumstances; for example, if there has been a previous drive-by valuation, and the Internet valuation confirms the general trend in house prices has been downward, there will be little need for a new valuation. If there has been no previous valuation, and there is reason to believe there may be a high margin of error in the Internet valuation, then even if the negative equity is over £10,000 a drive-by valuation should be arranged. In general, official receivers should exercise caution to ensure no valuable property interests are lost.
(b) In all other cases a drive-by valuation should be obtained and an updated statement of outstanding balances obtained from the mortgagee(s) and other charge holders. Where the calculation of interest’ using the drive-by valuation and the most recent mortgage/charge figure, confirms that the interest is likely to be less than £1000, the re-vesting procedure should be commenced immediately, there being no need to wait until the 3 years have elapsed (see paragraph 33.26 below).
(c) Where the drive-by valuation confirms equity of £1000 or more, depending on the equity available confirmed by the valuation, the bankrupt's interest in the property should be dealt with as follows:
i. Where possible, in the first instance and prior to obtaining a charging order, the interest should be sold back to the bankrupt. Letter MP7 should be sent to the bankrupt inviting an offer to purchase the bankrupt’s/ trustee’s interest. The RTLU needs to keep the file under close review and should commence the charging order procedure if it becomes apparent that the transfer is unlikely to be completed before the 3 year limit is reached.
ii. If the letter sent by the official receiver [note 22] has not prompted the bankrupt to make an offer to buy out the interest, and the bankrupt’s interest is (as a guide figure) £5000 or more, a Secretary of State insolvency practitioner appointment should be considered to deal with the bankrupt's interest in the property. (Please see Chapter 17, Part 5, Appointment by the Secretary of State.) Before doing so an attempt should be made to contact the bankrupt by telephone to inform him/her that an insolvency practitioner trustee appointment is being sought and to give him/her a further opportunity to avoid the possible consequences by making an offer to buy out the interest. The level at which an order for possession and sale might be justified will vary between insolvency practitioners, and RTLU’s will have to regard the prevailing practice within their region. If after the case has been offered to 2 or 3 insolvency practitioners and none are prepared to accept the nomination, the RTLU should proceed to obtain a charging order.
iii. Charging orders should only be sought as a last resort and in circumstances where the value of the bankrupt's interest is too small to justify an insolvency practitioner trustee appointment e.g. where the bankrupt’s interest is valued at between £1000 and £5,000, or where the case has been offered to 2 or 3 insolvency practitioners and none are prepared to accept the nomination (see Annex 2).
33.25A Determining the value of an interest in a low value home –review stage (inserted February 2011)
When determining the bankrupt’s interest in a property for the purposes of Section 313A (see paragraph 33.20), the official receiver, as trustee, should disregard that part of the value of the property in which the bankrupt’s/trustee’s interest subsists which is equal to the value of;
a) any loans secured by mortgage or other charge against the property;
b) any other third party interest; and
c) the reasonable costs of sale [note 22A].
33.26
Solely owned property - early re-vesting of the bankrupt’s interest (amended February 2011)After completing the review, if the official receiver, acting as trustee, considers that:
(a) The continued vesting of the property in the bankrupt’s estate is of no benefit to creditors; or
(b) The re-vesting to the bankrupt will facilitate a more efficient administration of the bankrupt’s estate then,
the official receiver should take the following action:
(a) Notify the bankrupt that he/she has formed this view.
(b) Inform the bankrupt that the property will re-vest 1 month from the date of the notice [note 5] [note 22B].
(c) Where the property is on registered land, inform the bankrupt that application will be made to the Chief Land Registrar to amend the register Land Register. Such application must be made within 7 days (in cases where the bankruptcy petition was presented before 6 April 2010) or 5 business days (in cases where the petition was presented on or after 6 April 2010) of the dwelling-house re-vesting (see paragraph 33.27 below).
(d) Where the property is on unregistered land, the official receiver must notify the bankrupt of the date the dwelling-house re-vests using Form 6.84 [note 23] with an accompanying letter [note 24].
(e) Notice must be given to all other persons with an interest in the dwelling-house (see paragraph 33.27 below).
33.27 Action to be taken in all cases whenever the dwelling-house re-vests in the bankrupt (amended October 2010)
The interest in the dwelling-house will re-vest without the need for any conveyance, assignment or transfer. When the dwelling-house re-vests the official receiver must take the following action dependent on whether the dwelling-house is registered at the Land Registry:
(a) Registered land - within 7 days (in cases where the bankruptcy petition was presented before 6 April 2010) or 5 business days (in cases where the petition was presented on or after 6 April 2010) of the dwelling-house re-vesting in the bankrupt, the official receiver (when acting as trustee) must make an application to the Chief Land Registrar to amend the register(s) [note 25]. The application must be accompanied by a certificate, BHCERT, stating that the interest has vested in the bankrupt. It is not necessary for the official receiver to send separate evidence of his or her appointment as trustee as BHCERT will suffice. The official receiver should make the application on form RX4 which is available from HM Land Registry's website, www.landreg.gov.uk/
The official receiver (when acting as trustee) is required to notify the bankrupt, and if applicable his/her spouse or civil partner, former spouse or former civil partner and every person who (to the official receiver’s knowledge) claims an interest in, or is under any liability in respect of, the dwelling-house that the application to the Land Registry has been made (including any chargeholder/mortgagee). Such notification(s) should be made using form BHLET and should whenever possible be sent within 7 days of the re-vesting of the interest in the bankrupt [note 26].
(b) Unregistered land - when the bankrupt's interest in the dwelling-house re-vests in him/her, the official receiver (when acting as trustee) must send Form 6.84 [note 23] to the bankrupt, his/her spouse or civil partner, former spouse or former civil partner (if applicable) and every person who (to the official receiver’s knowledge) claims an interest in the dwelling-house or is under any liability in respect of it (including any chargeholder/mortgagee) informing them of the re-vesting. Such notification(s) should whenever possible be sent within 7 days of the re-vesting of the interest in the bankrupt [note 27].
The certificate issued by the official receiver as trustee [note 28] is proof that the interest has re-vested in the bankrupt [note 29].
(For further guidance on protection of unregistered property see Chapter 50, paragraph 50.75)
33.27A Jointly owned dwelling-house – bankrupt’s interest £1000 or less (inserted February 2011)
Where a dwelling-house is jointly owned and the bankrupt’s interest in the property is minimal or negative (less than £1000 should be used as a guide figure see paragraph 33.20), the Property Conveyancing Scheme is not appropriate and form MP1 should not be sent. (For further information on the sale of jointly owned property see Part 7 of this chapter.).
The case should be transferred to RTLU for review at the two year and three month point (see paragraph 33.23).
33.27B – Jointly owned property – interest less than £1000- disability/caring responsibilities (inserted February 2011)
Where a bankrupt makes an approach to the official receiver, as trustee, requesting that his/her interest in such a property (see above) is dealt with prior to the two year and three month review (see paragraph 33.31), in the exceptional circumstance that the extended uncertainty in determining the interest may exacerbate a disability (especially mental health related), or potentially cause a mental health related disability as the uncertainty could cause undue distress, the official receiver may consider selling the bankrupt’s interest in the property for a nominal value using the Property Conveyancing Scheme.
An example would be where a disabled bankrupt (or a bankrupt with caring responsibilities for a disabled person) may have made specific adaptions to their home in order to cope with the disability and the uncertainty with regard to their interest in that property may cause distress.
This discretion must only be exercised by the official receiver, as trustee, on a case by case basis. Similar provision should be considered for requests based upon caring responsibilities (including pregnancy and caring for young children) and age (65+) where the uncertainty could lead to mental health related concerns.
33.28 Jointly owned dwelling-house – equity greater than £1000 (amended February 2011)
Where the bankrupt’s interest in a jointly owned property is greater than £1000 but is still minimal (£5000 should be used as a guide figure) (see also paragraphs 33.20), the official receiver, as trustee, should give consideration to sending the MP1 letter to the bankrupt, and any joint owner, inviting an offer to purchase the bankrupt’s interest in the property from the official receiver under the Property Conveyancing Scheme. Any sale of the bankrupt’s interest in a property should clearly be in the interests of creditors, see paragraph 33.21A.
If possible, a signature should be obtained to confirm that the bankrupt has received form MP1. At the same time the official receiver should send the notice to the mortgagee to account to the official receiver [note 20]. (For further information on the sale of the bankrupt’s interest in jointly owned property see paragraphs 33.177 to 33.180.)
It should be made clear to the bankrupt that if the Property Conveyancing Scheme is not pursued, and if no other arrangements are made to transfer the bankrupt's interest, then the official receiver or trustee may take action to deal with the bankrupt's interest in the dwelling-house at any point during the period of 3 years or such longer period as the court may order that the interest vests in the trustee in bankruptcy [note 21] (see paragraph 33.37). Reference should also be made to paragraph 33.152 for information on the Property Conveyancing Scheme.
If the bankrupt has failed to acknowledge receipt of form MP1, a file note should be made recording how and on what date the official receiver requested the return of signed form MP1. Failure to obtain an acknowledgement should not delay release or discharge.
33.28A – Jointly owned property with equity greater than £5000 (inserted February 2011)
Where the bankrupt’s interest in a property is significant (£5000 should be used as a guide figure), consideration should be given by the official receiver, as trustee, to sending a letter to the bankrupt and any joint owner inviting an offer to purchase the bankrupt’s/trustee’s interest in the property from the official receiver, as trustee, under the Property Conveyancing Scheme. Form MP1 should be sent for this purpose. If possible, a signature should be obtained to confirm that the bankrupt has received form MP1. At the same time the official receiver should send the notice to account to the official receiver to the mortgagee [note 20].
Any sale of the bankrupt’s interest in a property should clearly be in the interests of creditors, see paragraph 33.21A. Where an acceptable offer has been received by the official receiver, and the realisation of the property is not likely to be protracted, the case should be transferred to RTLU for realisation of the property (see paragraph 33.19).
Where no reasonable offer is received, or the realisation of the property is likely to be protracted, or there are other assets of a complex nature where realisation is not straight forward, consideration should be given to seeking a Secretary of State insolvency practitioner appointment as trustee to deal with the bankrupt's interest in the property. Paragraph 17.3 of Chapter 17 provides general guidance on the matters to be considered when considering whether the appointment of an insolvency practitioner trustee is appropriate.
Other circumstances where the appointment of an insolvency practitioner trustee may be appropriate would be 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 (see paragraphs 16.16 to 16.24) for the appointment of a trustee other than the official receiver.
33.29 Jointly owned - role of RTLU (amended February 2011)
Following the initial stages, the official receiver, as trustee, should transfer the case to the RTLU who will;
(a) attempt to sell the bankrupt’s interest, either to the joint owner, back to the bankrupt, or to a third party introduced to the official receiver by the bankrupt where the sale of the bankrupt’s interest is clearly in the interests of creditors (see paragraph 33.21A). (If the bankrupt proceeds with the Property Conveyancing Scheme and the conveyance procedure is complete, the official receiver need take no further action in relation to the bankrupt's interest in the dwelling-house.) or,
(b) place the property on a register for review at a later point. The mortgagee may be left to deal with the bankrupt's interest in the mean time but should be requested to inform the official receiver of any attempted dealings and account for any surplus [note 20].
(For further information on dealing with property with minimal/no equity see Part 6 of this chapter and also paragraphs 33.20, and 33.21 on dealing with low value homes.)
33.30 Jointly owned property – need to review
Where the official receiver is trustee;
(a) if the mortgagee has not realised their security in the dwelling-house;
(b) and the trustee has not taken any steps to deal with the bankrupt's interest in the dwelling-house (as outlined in paragraph 33.14);
(c) and the bankrupt’s interest in the dwelling-house still vests in the trustee 2 years and 3 months from the date of the bankruptcy order or 2 years and 3 months from the date on which the official receiver, first became aware of the bankrupt’s interest (where delayed disclosure has extended the date for re-vesting of the bankrupt’s interest [note 6] - see paragraph 33.17(a)), then
the bankrupt’s interest in the dwelling-house should be reviewed by the RTLU, at the 2 year and 3 month point detailed above as this should allow sufficient time for the bankrupt’s interest to be dealt with before the property automatically re-vests at the 3 year point [note 3].
33.31 Jointly owned property – review process (amended February 2011)
At (or close) to the 2 year 3 month date a valuation of the property should be obtained by reference to an Internet valuation e.g. http://www.upmystreet.com or www.nationwide.co.uk/.../
(a) If the Internet valuation shows that there will be significant negative equity (of at least £10,000 (below that figure a drive-by valuation is essential)), the re-vesting procedure should be commenced immediately, there is no need to wait until the 3 year time limit (see paragraph 33.32 below). The official receiver will need to exercise judgment in certain circumstances; for example, if there has been a previous drive-by valuation, and the Internet valuation confirms the general trend in house prices has been downward, there will be little need for a new valuation. If there has been no previous valuation, and there is reason to believe there may be a high margin of error in the Internet valuation, then even if the negative equity is over £10,000, a drive by valuation should be arranged. In general, official receivers should exercise caution to ensure no valuable property interests are lost.
(b) In all other cases a drive-by valuation should be obtained and an updated statement of outstanding balances obtained from the mortgagee(s) and other charge holders. Where the calculation of interest using the drive-by valuation and the most recent mortgage/charge figure confirms that the bankrupt’s interest will be less than £1000, the re-vesting procedure should be commenced immediately, there being no need to wait until the 3 years have elapsed (see paragraph 33.32 below).
(c) Where the drive-by valuation confirms the bankrupt’s interest in the property is £1000 or more, depending on the equity available confirmed by the valuation, the bankrupt's interest in the property should be dealt with as follows:
i. Where possible, in the first instance prior to obtaining a charging order, the interest should be sold back to the bankrupt. Letter MP7 should be sent to the bankrupt inviting an offer to purchase the bankrupt’s interest. The RTLU needs to keep the file under close review and should commence the charging order procedure if it becomes apparent that the transfer is unlikely to be completed before the 3 year limit is reached.
ii. If the letter sent by the official receiver [note 22] has not prompted the bankrupt, co-owner or third party to make an offer to buy out the interest, and the bankrupt’s interest is £5000 or more, a Secretary of State insolvency practitioner trustee appointment should be considered to deal with the bankrupt’s/trustee’s interest in the property. (Please see Chapter 17, Part 5 - Appointment by the Secretary of State for further information.) Before doing so an attempt should be made to contact the bankrupt by telephone to inform him/her that an insolvency practitioner trustee appointment is being sought and to give him/her a further opportunity to avoid the possible consequences by making an offer to buy out the interest. The level at which an order for possession and sale might be justified will vary between insolvency practitioners, and RTLU’s will have to regard the prevailing practice within their region. If after the case has been offered to 2 or 3 insolvency practitioners, and none are prepared to accept the nomination, the RTLU should proceed to obtain a charging order.
iii. Charging orders should only be sought as a last resort and in circumstances where the value of bankrupt’s interest is too small to attract an insolvency practitioner trustee appointment e.g. where the bankrupt’s interest is between £1000 and £5000, and where attempts to sell the legal title to the joint owner, back to the bankrupt or to a third party introduced to the official receiver by the bankrupt have proved unsuccessful, or where the case has been offered to 2 or 3 insolvency practitioners and none are prepared to accept the nomination (see Annex 2).
33.32 Jointly owned property - early re-vesting of the bankrupt’s interest (amended October 2010)
After completing the review, if the official receiver, acting as trustee, considers that:
(a) The continued vesting of the property in the bankrupt’s estate is of no benefit to creditors; or
(b) The re-vesting to the bankrupt will facilitate a more efficient administration of the bankrupt’s estate then,
the official receiver should take the following action;
(a) Notify the bankrupt that this is the case.
(b) Inform him/her that the property will re-vest 1 month from the date of the notice [note 5].
(c) Where the property is on registered land inform the bankrupt that application will be made to the Chief Land Registrar to amend the register. Such application must be made within 7 days (in cases where the bankruptcy petition was presented before 6 April 2010) or 5 business days (in cases where the petition was presented on or after 6 April 2010) of the dwelling-house re-vesting (see paragraph 33.33 below)
(d) Where the property is on unregistered land the official receiver should notify the bankrupt of the date the dwelling-house re-vests using Form 6.84 [note 23] with an accompanying letter [note 24].
(e) Notice must be given to other parties with an interest in the dwelling-house (see paragraph 33.33 below).
33.33 Action to be taken in all cases whenever the dwelling-house re-vests in the bankrupt (amended October 2010)
The interest in the dwelling-house will re-vest without the need for any conveyance, assignment or transfer. When the dwelling-house re-vests the official receiver must take the following action dependent on whether the dwelling-house is registered at the Land Registry:
(a) Registered land - within 7 days (in cases where the bankruptcy petition was presented before 6 April 2010) or 5 business days (in cases where the petition was presented on or after 6 April 2010) of the dwelling-house re-vesting in the bankrupt, the official receiver (when acting as trustee) must make an application to the Chief Land Registrar to amend the register(s) [note 25]. The application must be accompanied by a certificate, stating that the interest has vested in the bankrupt. It is not necessary for the official receiver to send separate evidence of his/her appointment as trustee as form BHCERT will suffice. The official receiver should make the application on form RX4 which is available from Land Registry's website, www.landreg.gov.uk/
The official receiver (when acting as trustee) is required to notify the bankrupt, and if applicable his/her spouse or civil partner, former spouse or former civil partner and every person who (to the official receiver’s knowledge) claims an interest in, or is under any liability in respect of, the dwelling-house (including any chargeholder/mortgagee) that the application to the Land Registry has been made. Such notification(s) should be made using form BHLET and should whenever possible be sent within 7 days of the re-vesting of the interest in the bankrupt [note 26].
(b) Unregistered land - when the bankrupt's interest in the dwelling-house re-vests in him/her, the official receiver (when acting as trustee) must send Form 6.84 [note 23] to the bankrupt, his/her spouse or civil partner, former spouse or former civil partner (if applicable) and every person who (to the official receiver’s knowledge) claims an interest in the dwelling-house or is any under any liability in respect of it (including any chargeholder/mortgagee) informing them of the re-vesting. Such notification(s) should whenever possible be sent within 7 days of the re-vesting of the interest in the bankrupt [note 27].
Form 6.84 is proof that the interest has re-vested in the bankrupt [note 29].
(For further guidance on protection of unregistered property see Chapter 50, paragraph 50.75)
33.34 Jointly owned property - review
The value of the bankrupt's interest in a dwelling-house will be reviewed by the RTLU 2 years and 3 months after the date of the bankruptcy order or 2 years and 3 months from the date on which the official receiver or any insolvency practitioner trustee first became aware of the interest (where delayed disclosure has extended the date for re-vesting of the bankrupt’s interest - see paragraph 33.17(a)). The RTLU should obtain a current valuation of the dwelling-house if one has not been undertaken within the previous 6 months (see paragraph 33.16) and a current mortgage statement.
33.34A Determining the value of an interest in a low value home –review stage (inserted February 2011)
When determining the bankrupt’s interest in a property for the purposes of Section 313A (see paragraph 33.20), the official receiver, as trustee, should disregard that part of the value of the property in which the bankrupt’s interest subsists which is equal to the value of;
a) any loans secured by mortgage or other charge against the property;
b) any other third party interest; and
c) the reasonable costs of sale [note 22A].
33.35 Jointly owned - cases with equity post two year three month review (amended February 2011)
In cases with equity where the realisation of such a property is likely to be protracted (usually, this will be where the RTLU is not aware of any willing purchaser for the property), the RTLU should seek the appointment of an insolvency practitioner as trustee and arrange for handover of the estate as soon as possible. Paragraph 17.3 of Chapter 17 provides general guidance on the matters to be considered when considering whether the appointment of an insolvency practitioner trustee is appropriate.
Other circumstances where the appointment of an insolvency practitioner trustee may be appropriate would be 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 (see paragraphs 16.16 to 16.24) for the appointment of a trustee other than the official receiver.
It may be the case that the equity is insufficient to attract a nomination of an insolvency practitioner (this amount is not set at any particular level and would vary depending on local and general circumstances) and, in these circumstances, the RTLU will attempt to sell the property interest under the Property Conveyancing Scheme where to do so is clearly in the interests of creditors (see paragraphs 33.20) or, if this is not possible, and the bankrupt’s interest is in excess of £1000, apply for a charging order against the property interest. Otherwise, the RTLU will deal with the sale of the interest in the property to the willing purchaser.
The RTLU is precluded from taking action to realise a bankrupt’s interest in a qualifying property where the interest is less than £1000 [note 31]. In these cases the bankrupt’s interest in the property will be allowed to re-vest (see paragraphs 33.20 and 33.21).
33.36 Application for a charging order
Where the official receiver as trustee is unable to realise the bankrupt’s interest in a dwelling house which is occupied by the bankrupt or by his/her spouse or civil partner or former spouse or former civil partner, for any reason, he/she may make an application to the court for an order imposing a charge on the property to the value of the bankrupt's interest for the benefit of the estate [note 32]. In this case the property ceases to vest in the trustee and will revert to the bankrupt (subject to the charge) (but see paragraphs 33.20 and 33.21).
On re-vesting of the interest in the bankrupt, the official receiver as trustee must notify:
(a) The Chief Land Registrar (see paragraphs 33.27 and 33.33);
(b) The bankrupt;
(c) The bankrupt's spouse or civil partner, former spouse or former civil partner (if applicable); and
(d) Any third parties with an interest in the dwelling-house.
Applications for charging orders are rarely made and details of the circumstances when an application should be made and guidance on applications generally is contained in Annex 2 of this chapter.
33.37 Extension of the 3 year period
Upon application by the official receiver when acting as trustee, the court may extend the 3 year period if it is just and reasonable in all the circumstances of the case [note 21].
If the official receiver is considering applying for an extension of time the sanction of the Secretary of State is required [note 33]. Applications for sanction should be made to Technical Section, who have delegated authority to act on behalf of the Secretary of State. The official receiver should make any application expeditiously and before the expiry of the 3 year period. The Service has obtained Counsel’s opinion that the legislation does allow for an application to be made after the expiry of the 3 year period. As a matter of policy official receivers should not seek to extend the 3 year period after it has expired. If an official receiver believes that they have an exceptional case, which would be appropriate for an application to be made after the 3 year period has expired, this should be discussed with Technical Section. (See Annex 2 paragraph 21(g – h) for further information.)
Where an interest in a qualifying property has been lost solely as a consequence of the expiry of the 3 year period without action by the official receiver, the details should be referred to Technical Section.
33.38 Disclaiming interest in a dwelling-house (amended October 2010)
Sections 283A and 313A do not affect the power of the official receiver to disclaim the bankrupt's interest in a dwelling-house which he/she considers to be onerous. Where the property is a dwelling-house there are specific requirements for the trustee to serve notice on every person occupying the dwelling-house or claiming an interest in it (as far as the trustee is aware of their addresses) [note 34]. Disclaiming the bankrupt's interest in the dwelling-house would be a matter of last resort. When a property is disclaimed, the interest does not re-vest in the bankrupt unless a vesting order is made (see paragraph 34.86). Notice of the disclaimer should be sent to the Land Registry where the property is solely owned registered land and notice of the disclaimer of any solely owned freehold property must be served on the Crown Estate Commissioners, Crown Estate Office, 16 New Burlington Place, London, W1S 2HX. For further information on disclaiming property and the effect of a disclaimer, see paragraph 33.174 and Chapter 34, Parts 3 and 4.
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