BRIEFING PAPER
Number 05271, 6 October 2015
What assets vest in the
trustee in bankruptcy?
By Lorraine Conway
Inside:
1. What is bankruptcy?
2. The function of the trustee in
bankruptcy
3. The bankrupt’s estate
4. Specific assets that may pass
to the trustee in bankruptcy
5. What happens to the
bankrupt estate after
discharge?
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Number 05271, 5 October 2015
Contents
Summary
3
1.
What is bankruptcy?
4
2.
The function of the trustee in bankruptcy
5
3.
3.1
3.2
3.3
The bankrupt’s estate
Definition
Assets disposed of prior to bankruptcy
Transactions at an undervalue
Transactions at a preference
Court orders: preferred or undervalued transactions
After-acquired property
6
6
8
8
9
10
10
4.
4.1
4.2
4.3
Specific assets that may pass to the trustee in bankruptcy
Income
Pensions
Family home
12
12
12
15
5.
What happens to the bankrupt estate after discharge?
17
Cover page image copyright: Money UK British pound coins by hitthatswitch. Licensed
under CC BY 2.0 / image cropped.
2
3
Bankruptcy: Assets that pass to the trustee
Summary
This briefing note considers in detail those assets that would pass to the trustee in
bankruptcy as at the date of the bankruptcy order and forms the ‘bankrupt estate’. This
note applies only to England and Wales. Scotland has its own legal procedure for
individual insolvency, known as sequestration.
Summary: Assets that pass to the trustee in bankruptcy
•
•
•
•
Once a bankruptcy order has been made by the court, the official receiver or a private sector
insolvency practitioner will be appointed trustee in bankruptcy.
As at the date of the order, the bankrupt estate vests in the trustee. The bankrupt’s estate
essentially consists of all the assets which belongs to or is vested in the bankrupt at the
commencement of the bankruptcy.
The function of the trustee is to collect in and sell the bankrupt’s assets and to make payments
to creditors in accordance with the Insolvency Act 1986 (IA 1986).
The bankrupt has a duty to provide information to the trustee, and attend at the trustee’s office
as and when reasonably required.
This note looks at the assets of the bankrupt that vest in the trustee in bankruptcy
immediately upon his/her appointment, pursuant to section 306 of the Insolvency Act
1986 (IA 1986), and outlines the steps that should be taken by the trustee to protect and
secure those assets for the benefit of the creditors. Specifically, it considers the treatment
of the following assets on bankruptcy: income, pension, and property (including the
matrimonial home).
‘After-acquired
property’ is any asset
(including money)
In addition, this note considers the treatment of so-called ‘after-acquired
property’. The trustee can, subject to certain time limitations, claim after- received by the
bankrupt during
acquired property for the benefit of the creditors.
his/her bankruptcy
Finally, this note also considers the circumstances where assets disposed of (i.e. after the date of
by the bankrupt before the commencement of the bankruptcy may be
the bankruptcy order
reclaimed by the trustee as part of the bankrupt estate. The trustee has a but before the date
wide range of powers under the IA 1986 to investigate events which took of discharge.)
place prior to the bankruptcy. If there is sufficient evidence, the trustee’s
investigations may lead to a court application to overturn ‘undervalue’ or ‘preference’
transactions. For example, if prior to the making of the bankruptcy order the debtor
transferred property to a relative for less than it’s true worth or showed preference to a
particular creditor by making a payment that placed the creditor in a better position than
they would have been in otherwise.
Number 05271, 5 October 2015
1. What is bankruptcy?
Bankruptcy and the sale of property are determined by provisions of the
IA 1986 (as amended), the Insolvency Rules 1986 and the Enterprise Act
2002 (EA 2002).
Bankruptcy is an option for any individual who cannot pay their debts
“as and when they fall due”. Under the Insolvency Act 1986 (IA 1986) a
court makes a bankruptcy order only after a bankruptcy petition has
been presented. It is usually presented either by:
•
•
•
the debtor themselves (known as a ‘debtor’s petition’); or
one or more creditors who are currently owed £5,000 1 or more by
the debtor and that amount is unsecured (known as a ‘creditor’s
petition’); or
the supervisor or anyone bound by an Individual Voluntary
Arrangement (IVA)
Once a bankruptcy order has been made by the court, an official
receiver will be appointed trustee in bankruptcy (unless a private sector
insolvency practitioner is appointed).
For the purposes of this note, it is assumed that the bankrupt is subject
to a creditor’s petition (i.e. a compulsory bankruptcy order.)
1
The creditor petition level rose from £750 to £5,000 on 1 October 2015
4
5
Bankruptcy: Assets that pass to the trustee
2. The function of the trustee in
bankruptcy
As at the date of the bankruptcy order, the bankrupt’s estate vests in
the trustee. Creditors can no longer pursue the debtor for payment;
payment becomes the responsibility of the trustee. Specifically, section
306 of the IA 1986 states:
306. Vesting of bankrupt's estate in trustee
(1) The bankrupt's estate shall vest in the trustee immediately on
his appointment taking effect or, in the case of the official
receiver, on his becoming trustee.
(2) Where any property which is, or is to be, comprised in the
bankrupt's estate vests in the trustee (whether under this section
or under any other provision of this Part), it shall so vests without
any conveyance, assignment or transfer.
The function of the trustee is to get in, realise and distribute the
bankrupt's estate in accordance with the IA 1986. In the carrying out of
that function and in the management of the bankrupt's estate the
trustee is entitled, subject to the IA 1986, to use his own discretion.
The bankrupt has 21 days from the date of the bankruptcy order in
which to provide the trustee with information relating to his/her
financial affairs, including a full list of their assets (including property,
pensions, insurance policies etc.) and a full list of their debts.
Number 05271, 5 October 2015
6
3. The bankrupt’s estate
3.1 Definition
The ‘bankrupt’s estate’ is the term used to describe that body of the
bankrupt’s assets that pass to the trustee on his appointment for
distribution to the creditors. In other words, the bankrupt’s estate
consists of all the property which belongs to or is vested in the bankrupt
at the commencement of his bankruptcy (i.e. the date on which the
bankruptcy order is made).
Box 1: Section 283 of the IA 1986 defines the bankrupt’s estate as follows:
(a) All property belonging to or vested in the bankrupt at the commencement of the bankruptcy;
or
(b) any property which is or is treated as being comprised in the estate by virtue of the provisions
of the Act which relate to the insolvency of individuals.
Box 2: Section 436 of the IA 1986,
Under section 436 of the IA 1986, the term ‘property’ is defined widely. It includes:
...money, goods, things in action, and every description of property wherever situated and also
obligations and every description of interest, whether present or future or vested or contingent, arising
out of, or incidental to, property.
It is clear that although the bankrupt’s estate is defined by reference to
the date of the bankruptcy order, the statutory definition of ‘property’
draws into the estate future and contingent interests, so long as they
exist as proprietary interests at that date. It is also clear that there is no
geographical restriction on the property which comprises the bankrupt’s
estate.
However, certain property is specifically excluded from the estate in
order to maintain the bankrupt’s ability to earn an income and a
reasonable standard of living (see Box 3 below).
7
Bankruptcy: Assets that pass to the trustee
Box 3: Items specifically excluded from the bankrupt’s estate
The exemptions include:
•
Such tools, books, vehicles and other equipment as are necessary to the bankrupt for personal
use by him in his employment, business or vocation (subject to the trustee’s right to replace any
of these items at a lower cost if this is reasonable); 2
•
such clothing, bedding, furniture, household equipment and provisions as are necessary for
satisfying the basic domestic needs of the bankrupt and his/her family; 3
•
property held by the bankrupt on trust for any other person does not form part of his/her estate
– the bankrupt continues to hold the property on trust for the third party beneficiary who
remains entitled to it, subject to the terms of the trust; 4
•
a student loan made to the bankrupt before or after the date of the bankruptcy order is not
regarded as an asset that the trustee may claim, if a balance of the loan remains payable; and
•
certain state benefits are also excluded from a bankrupt’s estate by virtue of the provisions of
other Acts
It should be noted that property in the bankrupt’s estate is held by the
trustee subject to the prior legal right of any person (other than the
bankrupt) in such property. For example, a freehold interest in land
owned by the bankrupt falls within his estate and can be sold by the
trustee in bankruptcy for the benefit of creditors. However, if all or part
of the property has been mortgaged, the property passes to the trustee
in bankruptcy subject to the mortgagee’s interest, and subject to the
mortgagee’s right to take possession even after the bankruptcy and to
exercise all the other rights of a mortgagee (including the right of sale).
In circumstances where assets have been disposed of by the bankrupt
before the commencement of the bankruptcy but have been reclaimed
by the trustee (i.e. transactions at an undervalue or a preference), the
assets are also treated as being part of the bankrupt estate (see
paragraph 3.5 below).
2
3
4
Sections 283(2)(a) and 308(1) of the Insolvency Act 1986
Section 283(2)(b) of the Insolvency Act 1986
Section 283(3)(a) of the Insolvency Act 1986
Number 05271, 5 October 2015
8
3.2 Assets disposed of prior to bankruptcy
In addition to the normal asset realisations, the trustee has a wide range
of powers under the IA 1986 to investigate events which took place
prior to the bankruptcy. If there is sufficient evidence, his investigations
may lead to the overturning of any ‘transactions made at an undervalue’
(or gifts) or ‘preference transactions’ (see Boxes 4 and 5 below). If
assets are reclaimed by the trustee, they are treated as being part of the
bankrupt estate, available to the creditors.
Transactions at an undervalue
Box 4: Transaction at an undervalue
The provisions relating to undervalued transactions are contained in sections 339, 341 and 342 of the
IA 1986. Specifically, section 339(1)-(3) states:
339. (1) Subject as follows in this section and section 341 and 342, where an individual is adjudged
bankrupt and he has at a relevant time (defined in section 341) entered into a transaction with any
person at an undervalue, the trustee of the bankrupt's estate may apply to the court for an order under
this section.
(2) The court shall, on such an application, make such order as it thinks fir for restoring the position to
what it would have been if that individual had not entered into that transaction.
(3) For the purposes of this section and sections 341 and 342, an individual enters into a transaction
with a person at an undervalue if –
(a) he makes a gift to that person or he otherwise enters into a transaction with that person on
terms that provide for him to receive no consideration
(b) he enters into a transaction with that person in consideration of marriage, or
(c) he enters into a transaction with that person for a consideration the value of which, in
money or money's worth, is significantly less than the value, in money or money's worth, of
the consideration provided by the individual
In effect, if prior to bankruptcy proceedings a debtor transfers an asset
to an associate (i.e. a family member or friend) at less than its true
market value, the trustee in bankruptcy can examine the circumstances
of the transfer. If the transaction was at a substantial undervalue the
trustee can apply to the court to have the property sold and the equity
realised for the benefit of all the creditors. Where an action is
commenced by a trustee on or after 15 September 2003, he must
obtain sanction of the court or creditors’ committee.
To successfully challenge a transaction, the trustee must be able to
show that the transaction was at made an undervalue and that it
occurred during the 5 years prior to the day that the bankruptcy
petition was presented. If the transaction was entered into in the period
of 2 to 5 years prior to the presentation of the petition, the individual
must either have been insolvent at that time or to have become
insolvent as a result of the transaction.
9
Bankruptcy: Assets that pass to the trustee
The onus of proving insolvency is on the trustee except in relation to an
‘associate’. Where an individual has entered into an undervalue
transaction with an associate, it is presumed that the individual was
insolvent at the time.
Under section 339(3) of the IA 1986 any transactions entered into in the
2 years prior to the date of the bankruptcy order are voidable,
regardless of whether or not the individual was solvent, unless the
transaction was for valuable consideration and entered into in good
faith.
For the purposes of
the IA 1986, a person
is an “associate of
the bankrupt” if they
are a spouse, a
relative, or the
spouse of a relative.
Transactions at a preference
Box 5: Transactions at a preference
The provisions relating to preferential transactions are contained in sections 340, 341 and 342 of the
IA 1986. Specifically, section 340 states:
340. (1) Subject as follows in this and the next two sections, where an individual is adjudged bankrupt
and he has a relevant time (defined in section 341) given a preference to any person, the trustee of the
bankrupt's estate may apply to the court for an order under this section.
(2) The court shall, on such an application, make such order as it thinks fit for restoring the position to
what it would have been if that individual had not given that preference.
(3) For the purposes of this and the next sections, an individual gives a preference to a person if –
(a) that person is one of the individual's creditors or a surety or guarantor for any of his debts
or other liabilities,
(b) the individual does anything or suffers anything to be done which (in either case) has the
effect of putting that person into a position which, in the event of the individual's bankruptcy,
will be better than the position he would have been in if that thing had not been done
(4) The court shall not make an order under this section in respect of a preference given to any person
unless the individual who gave the preference was influenced in deciding to give it by a desire to
produce in relation to that person the effect mentioned in sub- section (3)(b) above.
(5) An individual who has given a preference to a person who, at the time the preference was given,
was an associate of his (otherwise than by reason only of being his employee) is presumed, unless the
contrary is shown, to have been influenced in deciding to give it by such a desire as is mentioned in
subsection (4).
(6) The fact that something has been done in pursuance of the order of a court does not, without
more, prevent the doing or suffering of that thing from constituting the giving of a preference.
A preferential transaction is a payment or other transaction made by a
debtor which places a creditor in a better position than they would have
been in otherwise. A trustee in bankruptcy may apply to the court for
an order to recover sums or set aside a transaction which is found to be
a preference, provided the transaction took place within a period of
either 2 years where the creditor is a ‘connected person’ (i.e. a family
member) or 6 months in other cases of the insolvency (see Box 6
below).
Number 05271, 5 October 2015 10
Court orders: preferred or undervalued transactions
Box 6: Court orders dealing with preferred or undervalued transactions
•
•
•
•
Section 342(1) of the IA 1986 contains examples of the possible orders the court may make, in
relation to both a transaction at an undervalue and a voidable preference.
However, on consideration of the evidence, the court has discretion to make whatever order it
thinks fit or to dismiss the application made by the trustee.
A ‘bona fide purchaser acting in good faith’ is protected by the IA 1986. However, any person
who was the other party to a transaction at an undervalue or received a preference will not be
protected if he/she had notice of the relevant surrounding circumstances (i.e. the fact that the
transaction was at an undervalue or preference) and of the relevant proceedings (i.e. pending or
actual insolvency).
If a court order is made to overturn an undervalue or preference transaction, the reclaimed assets
will form part of the bankrupt estate. This means that the assets can be realised and the
proceeds distributed to the creditors.
3.3 After-acquired property
Assets obtained during the bankruptcy (i.e. after the date of the
bankruptcy order and before the date of discharge) are referred to as
‘after-acquired property’. An inheritance that passes to the bankrupt
during the life of the bankruptcy is an obvious example of ‘afteracquired property. Such property must be declared to the trustee. The
trustee can make a claim to it, under section 307 of the IA 1986, for the
benefit of the creditors (see Box 7 below).
Box 7: After-acquired property – section 307 of the IA 1986
307. (1) Subject to this section and section 309, the trustee may by notice in writing claim for the
bankrupt's estate any property which has been acquired by, or has developed upon, the bankrupt since
the commencement of the bankruptcy.
(2) A notice under this section shall not be served in respect of (a) any property falling within subsection (2) or (3) of section 283 in Chapter II
(b) any property which by virtue of any other enactment is excluded from the bankrupt's
estate, or
(c) without prejudice to section 280(2)(c) (order of court on application for discharge), any
property which is acquired by, or develops upon, the bankrupt after his discharge
(3) Subject to the subsection, upon the service on the bankrupt of a notice under this section the
property to which the notice relates shall vest in the trustee as part of the bankrupt's estate; and the
trustee's title to that property has relation back to the time at which the property was acquired by, or
developed upon, the bankrupt.
(4) Where, whether before or after service of a notice under this section (a) a person acquires property in good faith, for value and without notice of the bankruptcy, or
(b) a banker enters into a transaction in good faith and without such notice,
the trustee is not in respect of that property or transaction entitled by virtue of this section to
any remedy against that person or banker, or any person whose title to any property derives
from that person or banker
(5) References in the section to property do not include any property which, as part of the bankrupt's
income, may be the subject of an income payments order under section 310.
11 Bankruptcy: Assets that pass to the trustee
Under the IA 1986, the bankrupt must notify the trustee of all after
acquired property. Once notified, the trustee has a limited time frame in
which to decide whether to claim all or any of the property for the
benefit of the creditors (see Box 8 below).
Box 8: Section 309 of the IA 1986 states:
309. Time limit for notice under Section 307
(1) Except with the leave of the court, a notice shall not be served (a) under section 307, after the end of the period of 42 days beginning with
the day on which it first came to the knowledge of the trustee that the
property in question had been acquired by, or had devolved upon, the
bankrupt;
(b) under section 308, after the end of the period of 42 days beginning with
the day on which the property in question first came to the knowledge of the
trustee.
For the purposes of this section (a) anything which comes to the knowledge of the trustee is deemed in
relation to any successor of his as trustee to have come to the knowledge of
the successor at the same time; and
(b) anything which comes (otherwise than under paragraph (1) to the knowledge of a
person before he is the trustee is deemed to come to his knowledge on his
appointment taking effect or, in the case of the official receiver, on his becoming
trustee.
In effect, the trustee must notify the bankrupt in writing of his claim
within 42 days of his becoming aware of the after-acquired property. In
practice, time would run either from the date the bankrupt informs the
trustee of his acquisition of new property or the date the trustee
becomes aware of the after-acquired property by some other means.
The bankrupt has a responsibility to be honest about their situation with
their trustee.
In exceptional circumstances, the bankrupt could make a representation
to the trustee as to why they should be allowed to keep some (if not all)
of the after-acquired property. The bankrupt would need to obtain
proper legal advice as to whether or not they have grounds for making
such a representation.
Number 05271, 5 October 2015 12
4. Specific assets that may pass to
the trustee in bankruptcy
4.1 Income
If appropriate, the trustee in bankruptcy may apply to the court for an
Income Payments Order (IPO). If the court were to make an IPO, the
bankrupt would be required to make contributions towards his/her
bankruptcy debts from their income. However, the court will only make
an IPO if it is satisfied that the bankrupt would be left with sufficient
income to meet the reasonable domestic needs of his/her family. Once
an IPO is made, it can be varied by the court if the bankrupt’s
circumstances change and they have an increase or decrease in income.
An alternative to an IPO is an Income Payments Agreement (IPA). This is
a written agreement between the bankrupt and his/her trustee in
bankruptcy. Under an IPA, the bankrupt agrees to pay a specified
amount of their income to the trustee for a specified period of time.
An IPO or IPA normally lasts for 3 years from the date of the order. This
means that an IPO may continue long after the bankrupt has been
discharged from bankruptcy.
The trustee in
bankruptcy can apply
to the court for an
order that the
bankrupt or his/her
employer make
regular payments
into the bankruptcy
estate from their
surplus income for a
specified period of
time.
An Income Payments
Agreement (IPA) is a
written agreement
between the
bankrupt and his/her
trustee in
bankruptcy.
4.2 Pensions
Box 9: Types of pension
There are basically four types of pension that a bankrupt may have already or could be entitled to
receive in the future. It is not unusual for the bankrupt to have more than one type of pension or to
have several pensions of the same type.
•
State pension – this will include any payment from the State Second Pension (S2P) (formerly
known as the State Earnings Related Pension Scheme or SERPS).
•
Occupational pension – this is a scheme set up by an employer to provide members with
retirement and death benefits. (Contributions may have been made by the employer, the
employee, or both).
•
Personal pension plan – this is a personal pension policy the bankrupt may have taken out with
an insurance company to pay him/her benefits in later life. (Retirement annuity contracts are
similar to personal pension plans and are treated in the bankruptcy in a similar way).
Group personal pension – this is a personal pension policy taken out with a pension provider,
often on favourable rates and terms negotiated by an employer or trade association. After a
bankruptcy order is made, a group personal pension is dealt with in the same way as other
personal pension plans.
13 Bankruptcy: Assets that pass to the trustee
The treatment of pensions on bankruptcy changed with the
introduction of the Welfare Reform and Pensions Act 1999 5 (WRPA
1999). A distinction is made between bankruptcies made before and
after the 29 May 2000 (see Boxes 10 and 11 below).
Box 10: Bankruptcies made before 29 May 2000
5
•
Prior to the reforms brought in by the WRPA 1999, a bankrupt’s rights under his/her pension
scheme constituted ‘property’ within the meaning of section 436 of the IA 1986 and, with
certain minor exceptions, formed part of the bankrupt’s estate (under section 283 of IA 1986)
and vested in his trustee in bankruptcy (pursuant to section 306 of the IA 1986).
•
It follows from this that if an individual was made bankrupt on a bankruptcy petition presented
before 29 May 2000, his/her trustee in bankruptcy may claim part or all of their pension,
whether they are receiving it now or it is due in the future (i.e. uncrystallised pension rights). In
respect of a personal pension plan, this means that from the date of the bankruptcy order all
rights and benefits (except rights arising where the policy was used to contract out of SERPS) vest
in (i.e. transfer to) the bankruptcy estate. The trustee in bankruptcy has the same rights under
the policy as the individual had before becoming bankrupt. In other words, the trustee cannot
claim the pension benefits until the bankrupt reaches the earliest retirement age allowed by the
policy.
•
Some occupational pension schemes have ‘forfeiture clauses’. Under a forfeiture clause, if a
person is made bankrupt they automatically lose their pension rights, and their trustee in
bankruptcy cannot claim the pension as an asset of the bankruptcy. If the occupational pension
scheme in question has no valid forfeiture clause, then the trustee in bankruptcy will be able to
claim pension benefits for the bankruptcy estate.
•
Further, in order to protect scheme members, many pension schemes included forfeiture clauses.
Although these varied from scheme to scheme, the purpose of them was automatically to forfeit
the member’s entitlement to scheme benefits on his bankruptcy and for the trustees to have a
discretion to distribute payments, up to the value of those benefits, to the member or his family
(known as protective trusts). 6
•
It is important to note that if a trustee in bankruptcy has claimed pension benefits under a
personal pension or an occupational pension, this may include any lump sum as well as regular
pension payments. 7
In respect of Northern Ireland, the Welfare Reform and Pensions (Northern Ireland)
Order 1999
6
7
“Nabarro’s Pension Law Handbook”, 12th edition, Jennifer Bell and Susan Jones,
Bloomsbury Professional, para. 1.54
In certain circumstances the bankrupt may be able to ‘buy back’ the benefits under
the scheme from the trustee in bankruptcy
Number 05271, 5 October 2015 14
Box 11: Bankruptcies made after 29 May 2000
•
The WRPA 1999 provides that where a bankruptcy order is made against a person on a petition presented
after 29 May 2000, any rights of the bankrupt under an approved pension arrangement 8 are excluded
from the bankrupt’s estate. 9 This means they cannot be claimed by the trustee in bankruptcy for the
benefit of the creditors. 10 Significantly, the WRPA 1999 also made forfeiture clauses ineffective as from 6
April 2002.
•
Approved pension arrangements include pension schemes registered with HMRC under section 153 of the
Finance Act 2004, together with certain occupational pension schemes set up by governments outside the
UK and certain retirement annuity contracts. 11 If the official receiver is satisfied that the pension in question
is an approved pension arrangement, they will write to the bankrupt confirming that the pension does not
form part of the bankruptcy estate.
•
This change in legislation obviously provides valuable protection to a bankrupt with an approved pension.
However, this concession was not without the following reservations:
First, if the debtor had made excessive pension contributions the trustee in bankruptcy could apply
pursuant to new section 342A of IA 1986 to claw these excessive contributions back for the benefit of the
estate. (This could cover contributions paid up to five years prior to bankruptcy, personally, or via a
company.) In effect, this new statutory provision enables a trustee to seek an order of the court recovering
excessive contributions made into a pension scheme, where it has unfairly prejudiced the individual’s
creditors. “Excessive” is described as an amount which is excessive in view of the individual circumstances
when those contributions were made. A key factor will be whether the debtor was insolvent at the time
the contribution was made or in consequence of it. 12
Second, provisions contained in the IA 1986 relating to Income Payments Orders (IPOs) were amended by
the WRPA 1999. As a result, if a pension was in payment during the period that the debtor remained an
undischarged bankrupt, such pension payments could be taken into account in assessing the debtor’s
overall income for the purpose of the court determining whether to make an IPO pursuant to section 310
of the IA 1986.
•
If an unapproved pension policy does form part of the bankruptcy estate for the purposes of the WRPA
1999, the trustee in bankruptcy can claim the lump sum and the regular pension payments even after the
bankrupt has been discharged from bankruptcy. However, in certain circumstances, it may be possible for
the bankrupt to 'buy back' his/her interest in the pension policy from the trustee in bankruptcy.
•
It is also important to note that if the pension scheme is unapproved, in certain circumstances the bankrupt
may still be able to exclude it from the bankruptcy estate by applying to court for an Exclusion Order or by
making a qualifying agreement with the trustee in bankruptcy.
For completeness, it should be pointed out that the bankrupt’s state
pension or any payments from the State Second Pension (S2P) (formerly
known as SERPS) do not form part of the bankruptcy estate. It is also
worth pointing out that should a bankrupt die before the date of their
automatic discharge from bankruptcy, and the pension scheme does
8
9
10
11
12
Approved by HM Revenue and Customs
Section 11(1) of the Welfare Reform and Pensions Act 1999
In practice, if the official receiver/trustee in bankruptcy is in any doubt as to whether a
pension scheme has been approved by HM Revenue and Customs, they will write to
the pension provider for confirmation
See section 11(2) of the Welfare Reform and Pensions Act 1999 as amended by SI
2006/754, regulation 15
These provisions enable a trustee to pursue an excessive contributions claim, even
where the pension has been subject to a pension sharing arrangement
15 Bankruptcy: Assets that pass to the trustee
not nominate a beneficiary (or class of beneficiary), the trustee in
bankruptcy may claim the death benefit. 13 There is a separate Library
briefing paper on the treatment of pensions and Income Payment
Orders on bankruptcy. 14
4.3 Family home
The bankrupt’s ‘beneficial interest’ in a property (either freehold or
leasehold) generally falls within his bankrupt estate and can be sold by
the trustee in bankruptcy.
Section 283A of the Enterprise Act 2002 (EA 2002) limits the time in
which the trustee can deal with the bankrupt’s home to a period of 3
years. If the trustee fails to act within this 3 years period, the property
will revert back to the bankrupt (i.e. it will no longer form part of the
bankruptcy estate) unless the trustee has:
•
•
•
•
realised the interest; or
applied for an order of sale or possession in respect of the
premises in which the interest subsists; or
applied for a charging order over the premises in respect of the
value of the interest; or
entered into an agreement with the bankrupt regarding the
interest
Box 12: Section 283 of the EA 2002
Section 283A of the EA 2002 applies only where property comprised in the
bankrupt’s estate consists of an interest in a dwelling-house which at the date of
the bankruptcy was the sole or principal residence of:
(a) the bankrupt,
(b) the bankrupt’s spouse, or
(c) a former spouse of the bankrupt
For all new bankruptcy cases commenced after 1st April 2004, the
three years period in which the trustee must deal with the bankrupt’s
home will begin to run from the date of the bankruptcy order. If,
however, the trustee is not aware of the bankrupt’s interest in a
property, (i.e. it was not disclosed by the bankrupt) the trustee will have
three years from the date on which he/she became aware of it to deal
with the interest.
For old bankruptcy cases, where the bankrupt has long-since been
discharged but their home continues to vest in the trustee (described in
the Act as ‘pre-commencement bankruptcies’), the three years period
13
14
There
“Bankruptcy and the treatment of pensions and Income Payments Orders”, Library
briefing note SN/HA/7118, 5 March 2015
The largest potential
asset in a bankrupt’s
estate is usually a
beneficial interest in
the family home.
Number 05271, 5 October 2015 16
ran from the date the provisions come into force (i.e. 1 April 2004) to
31 March 2007.
There is a separate Library briefing paper providing detailed information
on the treatment of the matrimonial home on bankruptcy. 15
15
“What will happen to the bankrupt’s home?” Library briefing note SN/HA/5178, 19
March 2015
17 Bankruptcy: Assets that pass to the trustee
5. What happens to the bankrupt
estate after discharge?
Box 13: Automatic discharge from bankruptcy
As a general rule, the bankrupt will be automatically discharged from bankruptcy one year after the
date of the bankruptcy order. Automatic discharge will occur even if:
•
no payments have been to the creditors;
•
the bankrupt is still making contributions under an income payments
order/agreement; or
•
some of the bankrupt's assets have not yet been sold
On discharge, the bankrupt is released from bankruptcy restrictions and from most of the debts
they owed at the date the bankruptcy order. However, there are certain debts a discharged bankrupt is
not freed from, including:
•
any court fines or debts arising from fraud or certain other crimes;
•
debts incurred after the date of the bankruptcy order; and
•
all outstanding student loans
Even after discharge, there may still be assets that were owned by the
bankrupt either when the bankruptcy began or which were acquired by
him/her before discharge, which the trustee has not yet dealt with.
These may include:
•
•
•
property,
insurance or pension policy,
an interest in a will or trust fund etc.
These assets remain under the control of the trustee, who can deal with
them in the future. In practice, it may be some time after the bankrupt’s
discharge before all assets are dealt with. The only exception is the
trustee’s ability to deal with the family home; as outlined above, the
Enterprise Act 2002 now imposes a limitation period on the trustee’s
ability to deal with this asset.
After discharge, the bankrupt has a legal duty to continue to provide
information to the trustee if required to do so. Importantly, any property
the discharged bankrupt acquires after his discharge is his; the trustee
cannot lay claim to it.
Discharge from
bankruptcy does not
return ownership or
control of bankruptcy
assets to the
bankrupt or prevent
the trustee from
carrying out any of
his remaining
functions in relation
to the bankrupt’s
estate.
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BRIEFING PAPER
Number 05271, 5 October
2015
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