One of the criticisms of the old insolvency regime was that a Trustee in Bankruptcy (“the Trustee”), who had not immediately realised his or her interest in a Bankrupt’s family home, was able to recover this interest several years after the date of discharge of the Bankruptcy Order. In most cases, this interest would have increased substantially in value due to recent spiralling property prices. A new provision in the Enterprise Act 2002 seemed to redress the balance more in favour of the Bankrupt, specifying that his or her Trustee must have taken steps to realise the Bankrupt’s former interest in this property within three years of the date of the Bankruptcy Order. In addition, the three year time period does not run until the Trustee or Official Receiver is notified of the Bankrupt’s interest.
Property held in joint names
Nowadays it is more common for properties to be jointly owned by spouses or co-habiting couples. Where the legal title to a property is held in joint names, it is generally presumed that the beneficial interest in the property is shared equally between the parties. In the event of bankruptcy there are a number of issues which a Trustee or anyone affected by a bankruptcy order, needs to consider:
- Equitable accounting
- Mortgage capital repayment and mortgage interest repayments
- Improvements
- Equity of exoneration
- Third party interests
For instance if a Bankrupt’s adult children have made any contributions towards the property such as mortgage payments or improvements then they could argue that they have an interest in the property. Conversely, the Trustee may be able to argue that these payments were effectively a contribution to the child’s living expenses, which would not give rise to a proprietary interest in the property.
Matrimonial proceedings
Occasionally the Bankrupt and non-bankrupt spouse are involved in matrimonial proceedings at the time the Bankruptcy Order is made. In this situation, a Trustee will try to gather as much information as possible, as early as possible, and notify the matrimonial solicitors acting for the Bankrupt and non-bankrupt spouse of his appointment. The Trustee will then find out whether an Order has been made for a property adjustment, lump sum, costs and/or maintenance.
If financial relief proceedings are ongoing but a final Order has not been made, the Family Court may require the Trustee to be made a party to the proceedings and will require that any application in relation to the family home issued by the Trustee be heard at the same time as the application for financial relief.
If the financial proceedings are ongoing, the Trustee may well ask for copies of the Bankrupt’s and non-bankrupt’s Form E, which sets out in detail their financial position and for copies of any responses to questionnaires. This documentation may prove useful as it often reveals assets and/or income that the Bankrupt has failed to previously disclose to the Trustee. This property may form part of the Bankruptcy estate.
Once a final Order has been made within the matrimonial proceedings prior to the onset of the bankruptcy proceedings, that Order cannot be challenged by a Trustee in Bankruptcy even if the Order states that the matrimonial home is to be transferred from the Bankrupt to the Non-Bankrupt (see the case Hill v Haines [2007] BRIR 1280).
Finally, specialist independent legal advice should be sought as soon as possible. There are many pitfalls for the unwary.
This article was first published in NewsBrief, Autumn 2008.
For more information or advice on bankruptcy and a trustee's interest in the matrimonial home, please contact
Emma Easton.
