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PART 8
May 2008
MISCELLANEOUS POINTS
33.185 Order for the sale of the family home
The courts now seem increasingly willing to exercise a greater discretion to enable the family, as well as the bankrupt, to continue to reside in the family home. Section 335A provides that a trustee in bankruptcy can apply to the court having jurisdiction in relation to the bankruptcy under Trusts of Land and Appointment of Trustees Act 1996 [note 1] for an order for the sale of the family home (It is not anticipated that the official receiver will make such applications, see paragraph 33.14). Before such an order is made the court will have regard to:
(a) The interest of the bankrupt’s creditors;
(b) The conduct of the spouse, civil partner, former spouse or former civil partner in contributing to the bankruptcy;
(c) The needs and financial resources of the spouse, civil partner, former spouse or former civil partner;
(d) The needs of any children: and
(e) All the circumstances of the case other than the needs of the bankrupt.
33.186 Exceptional circumstances
Under section 335A, after one year has passed since the vesting of the bankrupt’s estate in the trustee, the court assumes that, unless there are exceptional circumstances, the interest of the bankrupt’s creditors outweigh all other considerations. The rights of creditors are also considered paramount to any matrimonial/civil proceedings home rights and to the rights of occupation of the bankrupt after the end of the period of one year from the appointment of the trustee [Note 2].
33.187 Examples of exceptional circumstances
The courts have largely taken a narrow view of what constitutes exceptional circumstances. Family hardship caused by bankruptcy is not considered an exceptional circumstance. The hardship suffered by a wife and children of a bankrupt when the family home is taken is deemed distressing but not exceptional [note 3]. However, more recently the courts have shown a greater willingness to consider family hardship when deciding what constitutes ‘exceptional’ under section 335A, 336 and 337. Exceptional circumstances were found to be present where the illness of a wife was sufficient to persuade the court to refuse an application for sale [note 4]. Mental illness of a spouse or civil partner can also be deemed an exceptional circumstance [Note 5]. The court has also found that a bankrupt’s wife’s interest in looking after her elderly terminally ill husband was an exceptional circumstance [note 6]. Exceptional circumstances were found where the bankrupt’s wife was disabled and in poor health. The court ordered the sale of the property to be postponed until either the wife chose to vacate the property or died [note 7].
The above examples demonstrate that certain types of family suffering are considered as exceptional circumstances but generally the trend is to favour creditors’ rights without regard to ordinary family suffering.
33.188 The Human Rights Act 1998
The Human Rights Act 1998 has the potential to redefine a bankrupt’s family’s rights and to possibly save the family home. The Human Rights Act 1986 Article 8 of Schedule 1 concerns the right to respect for private and family life.
33.189 What is a family?
The concept of what a family is continues to change and is determined by the social and legal context in which it is considered. For there to be a family life and thus a family, there must be a real existence in practice of close personal ties. Relationships which constitute a family, include:
(a) Husband and wife or civil partners;
(b) Unmarried adults as long as the relationship shows significant commitment;
(c) Parent/child, including adopted children, grandparent/grandchild and possibly other relatives such as aunts and uncles.
Under section 385 a family is defined in relation to a bankrupt as the persons (if any) who are living with and dependant on him/her.
33.190 What is a home? (amended October 2009)
In order to be considered a home, the family must have a sufficient degree of connection with the dwelling. A home is a settled residence, professional office, or possibly even a holiday home, camper van or temporary hostel as long as there are sufficiently strong links to the family. A caravan has been deemed to constitute a home in certain circumstances [note 8]. Where a caravan or mobile home may be deemed to constitute a home, it needs to have a degree of site permanence and immobility. When a caravan is easily moved, does not have planning permission, or is not on a permanent site, then it is unlikely to be classed as a ‘house’ [note 19]. Where a caravan or mobile home is located on a protected site (i.e. registered with the local authority), then there is a degree of security granted to the occupants under certain legislation [note 20], which provides evidence of site permanence and immobility.
33.190A Practical scenario - what is a home (inserted October 2009)
In one case dealt with by the official receiver, a bankrupt lived in a 2-berth motor home which was parked on her parents driveway. The motor home did not have planning permission to be permanently sited on the driveway, and could easily be moved, so could not be classified as a ‘house’. The motor home was instead deemed to be a vehicle. However, because the motor home was necessary to meet her domestic need for shelter, it fell under the exempt property provisions as the bankrupt had insufficient income to move into rented accommodation, and had no alternative place to live (see Chapter 30) [note 21]. Consideration was then made as to whether there were grounds for claiming it as excessive in value. The motor home was considered to be too small for a permanent residence, and the likely cost of providing a replacement vehicle which would be suitable as permanent accommodation would not provide a surplus for the estate, and so the bankrupt was allowed to retain the motor home. Static caravans, larger style “Winnebago” type motor homes, and house boats are more likely to fall under the definition of a home.
33.191 Interaction with the Insolvency Act 1986
Under the Human Rights Act 1998 [note 9], all primary and secondary legislation must be read and implemented in a way that is compatible with the rights protected under the Act. Applying this principle to sections 335A, 336 and 337 of the Insolvency Act 1986, it could be argued that exceptional circumstances should include all instances where the family home and the rights of children are an issue.
33.192 Doctrine of Proportionality
The doctrine of proportionality, which is fundamental to the interpretation and implementation of the Human Rights Act 1998 (see also Chapter 83), must be considered not just in relation to the rights of the family and children but also the creditors. The key point here is that the impairment of the creditors’ rights to realise the bankrupt’s assets is necessary to accomplish the objective of protecting the family home and the interests of the children.
33.193 Human Rights Act 1998, The First Protocol, Article 1.
Article 1 of the First Protocol to the Human Rights Act 1998 states ‘every natural or legal person is entitled to the peaceful enjoyment of his possessions and no one shall be deprived of his/her possessions except in the public interest’. This indicates that possession of the family home should only be interrupted if it is in the public interest. It may be argued that leaving a family homeless in order to pay a bankrupt’s creditors is not in the public interest.
It has been held the test in section 335A (see paragraph 33.186) was not inconsistent with the rights in the Human Rights Act 1998 Article 1 in that the whole purpose of section 335A(2)(b) was to identify the need to respect the home, not as an absolute objective to be guaranteed in every case, but as a consideration in a balancing exercise. While the Insolvency Act 1986 provided that creditors' interests were to be taken into account, in an exceptional case it did not prescribe the weight to be given to those interests but did require the court to make an order that was fair and reasonable [note 10].
33.194A Awareness of people’s rights
When a decision is taken which affects an individual and the family home, consideration should be given as to whether there are any human rights, e.g. Article 8 of Schedule 1, which might apply and whether the decision can be adequately justified in the light of the Human Rights Act 1998.
It has been held that the protection of the rights under Article 8 require a balance to be struck between the needs of the individual and the needs of the community, and for any interference with individual rights to be proportionate to the legitimate aim pursued. The checks and balances that are carried out under section 335A (see paragraph 33.186) before an order for sale of the family home can be made, which include looking at the needs of a non-bankrupt spouse, dictated that the needs of the creditors should not be put first and that there was therefore no need for any separate consideration of Article 8 rights [note 11].
If the official receiver has any doubts about this matter, advice should be sought from Technical Section before a decision is implemented.
33.194B – Council Tax (amended November 2008)
Council Tax is a local tax set by local councils to help pay for local services [Note 12]. There is one council tax bill for each dwelling, whether it is a house, bungalow, flat maisonette, mobile home or houseboat, and whether it is owned or rented. Generally speaking the occupier(s) of the property are the liable person(s) for the payment of the tax with some limited exceptions [Note 13] .
Council tax is charged on a yearly basis from 1 April each year [Note 14] but the liability to pay council tax is determined on a daily basis [Note 15] The billing authority is required to make a demand for payment of the council tax separate to the notification of the amount of council tax and the tax becomes due when that demand is made but most council tax payers agree a statutory monthly payment scheme for payment of council tax [Note 16].
Any amount due and unpaid under the instalment agreement prior to the insolvency order is an unsecured debt in the proceedings [Note 17]. If the bankrupt's council tax is up to date under the instalment agreement at the date of the bankruptcy order, no amount is provable in the bankruptcy as it relates to future occupation of the dwelling. The bankrupt is liable to pay council tax after the date of the bankruptcy order. Where a liability order has been obtained by the council, prior to the bankruptcy order being made, then the whole debt as notified within the liability order becomes due and it is therefore a provable debt as defined in paragraph 40.12.
33.194C – Council tax exemptions – trustee in bankruptcy (amended November 2008)
Where a property is unoccupied, generally speaking, the legal owner of the property is liable for payment of council tax. A property is exempt from the council tax provisions where the liable person is a trustee in bankruptcy or the property has been taken into possession by a mortgagee under the terms of a mortgage on the property concerned [Note 18]. The exemptions apply even if the unoccupied property remains furnished. In addition the exemption will still apply if the trustee is jointly liable with someone else.
[Back to Part 7 – Sale of Property] [On to Part 9 – Mortgage Rescue Scheme (MRS)]