Issues and questions that come up during your bankruptcy period

Moderators: TalbotWoods, JaneClack

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By TalbotWoods
#240575 How the Insolvency Service Will Deal with Beneficial Interest from 1st January 2011


The OR will deal with property as soon as possible, for example if you want to buy the BI, then this can be done within a few months of your bankruptcy.

The Change

No property will be sold back or dealt with until 2 years 3 months has elapsed since the date of the bankruptcy. The BI will then be calculated on the market vale then. This applies even if the property is in significant negative equity.

There are multiple charges on the property

If there are significant secured charges on the property the OR will have the discretion of dealing with the BI prior to the new 2 years 3 months.

Is a change in law needed?

No, currently the law permits a window of three years in which to deal with property.

Who will this effect?

It appears that any negative equity property that has not already had the beneficial interest costs (£1 plus OR's fees) paid by 1st Jan, will be subject to the new rules.

The date of bankruptcy seems irrelevant.
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By TalbotWoods
Following consideration by the Directing Board, the way in which the family home in bankruptcy is to be dealt with has been amended. These changes should be put into effect for all cases from 1st January 2011, except where a property conveyancing transaction has been commenced in cases involving negative equity where the £1 consideration and the official receiver's conveyancing costs have been paid by the intended purchaser. Such cases should proceed to a conclusion without regard to this amended procedure.

The official receiver, as trustee of the bankruptcy estate, should no longer seek to dispose of a bankrupt's interest in a jointly or solely owned family home, as defined by section 283A of the Insolvency Act 1986, under the Property Conveyancing Scheme, prior to two years and three months from the making of the bankruptcy order, unless, an offer is received for a value which is clearly in the interest of creditors to accept. In practice this is likely to be for an amount which exceeds £1,000. In consequence, there will be no further sales of beneficial interests at nominal values.

Except as indicated above, in the period of the first two years and three months of a case, the property conveyancing scheme should not be used to dispose of bankrupts' beneficial interests in family homes.

Initial actions

Unless from the outset there appears to be sufficient equity to seek the appointment of an insolvency practitioner (the amount is not set at any particular level and would vary depending on local and general circumstances), the official receiver should no longer obtain a valuation of the property to confirm the debtor's estimate, or, seek confirmation as to the precise amounts of any charges against the property. It is reasonable to rely on any such information received on an unsolicited basis.

Transfer to RTLU

Where the equity in a property is insufficient to attract an insolvency practitioner to act as the trustee of a bankruptcy estate, the case should be transferred to the relevant RTLU.

Where there is equity and a willing purchaser is available, the realisation of the property interest is not likely to be protracted and it is clearly in the interests of creditors (see above), the case should also be transferred to the RTLU which will pursue the matter under the Property Conveyancing Scheme.

At two years and three months.

The case review should commence at the two years thee months stage (usually carried out by the RTLU).

In cases where at two years three months the bankrupts interest in the property is valued at less than £1,000 steps will be taken to re-vest the property interest in the bankrupt.

Otherwise, if, at the review stage. there is insufficient equity to attract an insolvency practitioner to act as the trustee of a bankruptcy estate, enquiries should be made as to whether the bankrupt or a third party would be interested in purchasing the bankrupt's interest, that is if it is believed or expected that the property interest is worth more than £1,000. If it is not possible to transfer the interest, and the bankrupt’s interest is valued in excess of £1,000, the official receiver should consider applying for a charging order.

Following the review, if there is equity in the property which is sufficient to attract an insolvency practitioner to act as the trustee of a bankruptcy estate, and where the official receiver is not aware of any willing purchaser, a Secretary of State appointment of an IP trustee should be sought.

Early Re-vesting

The official receiver will have the discretion to effect an early re-vesting of the property back to the bankrupt in the following tightly constrained circumstances.

1. At the outset of the bankruptcy 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.

2. Properties in negative equity where there are no second or subsequent charges but where the official receiver, as trustee, determines there is no reasonable prospect of a surplus becoming available in the three year period. This discretion may only be exercised on a case by case basis with the approval of the regional director.

3. Where a request is received from the bankrupt to deal with the property prior to the 2 year 3 month review on the basis of a disability (either direct or by association). This discretion must only be exercised by the official receiver on a case by case basis. Similar provision should be considered for requests based upon caring responsibilities (including pregnancy/maternity) and age (65+) where the uncertainty could lead to mental health related concerns.

Thanks to fermi
#268183 I have a case where i am seeking to argue that an offer of on a property is in the best interests of the creditors due to the fact the negative equity in a qulifying family home is so high that it will never yield benefit to the estate during the 2/3 and full 3 year period.

If the client does choose to file then i'll keep you posted .