Bankruptcy module 2 (2.4 Assets and income)

Question 1

Who does the principle residence rules apply to?

Answer 1

S283A Applies to the principle residence of:
 The bankrupt
 The bankrupt’s spouse or civil partner
 The bankrupt’s former spouse or civil partner
 [NOT necessarily dependant children]

Question 2

How long does the trustee have to realise the principle private residence?

Answer 2

Application of s283A
 The application of the rule depends upon occupancy, not ownership
 The 3 year period is extended if the bankrupt fails to disclose the property within 3 month of the bankruptcy
 The three years will run from the date the OR or trustee becomes aware of the property
 The court has power to extend the period (but may be reluctant to do so)
 The provisions do not apply to investment property or second homes, but may apply to more than one property if the bankrupt is separated from their family at the date of the bankruptcy
 s313A, where the trustee’s interest in the property is below £1,000, the court will dismiss any application by the trustee for possession and sale of the property or charge over it

Question 3

How long does the trustee have to serve notice on the residents?

Answer 3

Serving notice on the occupants – R10.167
 Where the property is the principal place of residence, the trustee must deliver a notice to the affected parties, setting out:
 the name of the bankrupt
 the address of the property
 where it is registered at HM Land Registry, the title number
 the date by which the trustee must have delivered the notice
 Notice must be delivered no later than 14 days before the third anniversary of the bankruptcy order;
 Or 14 days before the third anniversary of when the OR or trustee became aware of the property

Question 4

If there is no equity in a property at BO, when might the trustee revalue the property?

Answer 4

The property must be valued at an early stage to establish the level of available equity:
 If no or nominal equity, the property should be re-valued later
 The practice of the OR is to re-value at 2 years 3 months

Question 5

What are the criteria for exempt vehicles?

Answer 5

Mustbenecessaryforeither:
 Use personally in his employment, business, or vocation;or
 To meet the basic domestic needs of the bankrupt or his family
 If claiming vehicle required to basic domestic needs, the bankrupt must show that no practical alternative exists to meet a genuine need and not merely as a matter of convenience
 These may include:
 Getting to work or to obtain work where no alternatives exist (e.g. ifw orking
night shifts)
 Vocational carers or those with elderly or disabled relatives
 The bankrupt has their own mobility/ disability issues
 School journeys where no alternative transport options are available

Question 6

What is the position where property is subject to POCA restraint order?

Answer 6

Any property subject to a restraint order made under POCA 2002 before the bankruptcy order is made is excluded from the bankruptcy estate
 This means that such property will not automatically vest in the trustee
 s306A provides that such restrained property will vest in the trustee as partof
the bankruptcy estate where the restraint order is discharged

Question 7

How do you claim after acquired property?

Answer 7

The trustee may by notice in writing claim for the bankrupt’s estate any property which has been acquired by, or has devolved upon, the bankrupt since the commencement of the bankruptcy

Upon the service on the bankrupt the notice the property vests in the trustee as part of the bankrupt’s estate

 The trustee’s title to that property is deemed to relate back to the time at which the property was acquired by, or devolved upon, the bankrupt

Question 8

How long does a trustee have to claim after acquired property/ items of excess value?

Can property so claimed be disclaimed?

Answer 8

Time limit for claiming – s309

Within 42 days of when the property first came to their knowledge
 A trustee is deemed to have knowledge of anything within the knowledge of their predecessor (including the OR)

(4) A notice of disclaimer shall not be given under this section in respect of any property that has been claimed for the estate under section 307 (after- acquired property) or 308 (personal property of bankrupt exceeding reasonable replacement value), except with the leave of the court.

Question 9

What is onerous property?

Answer 9

(a) any unprofitable contract, and
(b) any other property comprised in the bankrupt’s estate which is unsaleable or not readily saleable, or is such that it may give rise to a liability to pay money or perform any other onerous act.

Question 10

What is the effect of a disclaimer?

Answer 10

(3) A disclaimer under this section—
(a) operates so as to determine, as from the date of the disclaimer, the rights, interests and liabilities of the bankrupt and his estate in or in respect of the property disclaimed, and
(b) discharges the trustee from all personal liability in respect of that property as from the commencement of his trusteeship,
but does not, except so far as is necessary for the purpose of releasing the bankrupt, the bankrupt’s estate and the trustee from any liability, affect the rights or liabilities of any other person.

Any person sustaining loss or damage in consequence of the operation of a disclaimer under this section is deemed to be a creditor of the bankrupt to the extent of the loss or damage and accordingly may prove for the loss or damage as a bankruptcy debt.

Question 11

Who can make an application under s304 ( liability for misapplication)?

Answer 11

An application under this section may be made by the official receiver, the Secretary of State, a creditor of the bankrupt or (whether or not there is, or is likely to be, a surplus for the purposes of section 330(5) (final distribution)) the bankrupt himself.

But the leave of the court is required for the making of an application if it is to be made by the bankrupt or if it is to be made after the trustee has had his release under section 299.

Question 12

Liability for misapplication - s304, who can benefit from any court order?

Answer 12

the court may order the trustee, for the benefit of the estate, to repay, restore or account for money or other property (together with interest at such rate as the court thinks just) or, as the case may require, to pay such sum by way of compensation in respect of the misfeasance or breach of fiduciary or other duty as the court thinks just.

Question 13

Who can an Income payments order be made against/ IPA made?

Answer 13

The bankrupt or their employer.

Question 14

How long can an IPO or IPA last

Answer 14

Maximum of 3 years from date of the order/ agreement.

Question 15

Can guaranteed minimum pension income be included when calculating an IPO?

Answer 15

No

Question 16

What is the single financial statement

Answer 16

A standard format for gathering income and expenditure used by OR & debt advice agencies.

Question 17

What happens if the bankrupt can’t pay an IPO/ IPA?

Answer 17

If a review finds the cessation of payments was unjustified, the trustee should seek to recover the arrears outstanding by varying the IPO/IPA
 If, following a review, the (former) bankrupt is not in a position to make high enough repayments for each of the remaining months of the original agreement or order to meet his/her total outstanding obligation, then the payments should be varied to the maximum monthly amount that he/she can afford

Question 18

How can an IPO/ IPA be varied

Answer 18

IPA - by written agreement with the trustee
IPO - an IPO can only be varied, reviewed or discharged by order of the court.

Question 19

How is an IPA/ IPO enforced?

Answer 19

Trustee will have discretion as to enforcement
Where a satisfactory agreement isn’t reached, an enforcement order may be obtained against employers and other third parties

Question 20

Priority of payment of bankruptcy expenses

Answer 20

R10.148-All fees, costs ,charges and other expenses incurred in the course of the bankruptcy are to be treated as expenses of the bankruptcy
 R10.149 - General rule as to priority of payment
 R10.147 - In no case do any costs or expenses fall on the official
receiver personally

Question 21

Where do a trustee’s expenses and fees rank?

Answer 21

The trustee’s expenses and fees rank after the OR and petitioner, but before any distributions to preferential or unsecured creditors

Question 22

How are a trustee’s fees approved?

Answer 22

 Not withstanding the trustee’s entitlement to be paid,their fee basis must be approved, prior to payment from the estate
 If there is a creditors’ committee, this will be one of their functions
 If there is no creditor’s committee, approval will be sought from the
creditors, via a decision procedure
 Fees cannot be approved via a deemed consent procedure
 If the creditors do not approve the trustee’s fees, or do so in an amount with which the trustee is dissatisfied, the trustee can apply to court

Payments that could reasonably be perceived as presenting a threat to the office holder’s objectivity or independence by virtue of a professional or personal relationship, including to an associate, should not be made from the estate unless disclosed and approved in the same manner as an office holder’s remuneration or category 2 expenses.

Question 23

What is the difference between category 1 and category 2 expenses?

Answer 23

Category 2 expenses can only be paid with the approval of the creditors in the same manner as remuneration