03: Procedure following the bankruptcy order

When the court makes a bankruptcy order:

  • The official receiver initially takes control of the debtor’s property, and may continue to supervise the sale and distribution of the debtor’s assets as a trustee in bankruptcy.
  • The debtor must submit a statement of affairs to the official receiver, who then decides whether to call a meeting of creditors to enable them to appoint an insolvency practitioner as trustee in bankruptcy.
  • Provided none of the creditors insist on a meeting being held, the official receiver automatically becomes the trustee.
Function of the trustee

The function of the trustee is to access, realise and distribute the bankrupt’s estate.
  • All property owned by the debtor on the date of the bankruptcy order, and any property subsequently acquired, passes to the trustee. The trustee might also take any ‘reasonable’ income of the bankrupt.
  • Debtors are only entitled to retain the tools of their trade, a vehicle if they need one for their employment or trade, and clothing, furniture and bedding belonging to themselves and their family.
The bankrupt’s home – immediate sale

If a debtor owns their own home and lives alone, or with a spouse, or with adult children, the debtor’s interest in the property and the right to sell it passes to the trustee who will immediately obtain, as a formality, an order for sale.

  • When the home is sold, the trustee can only claim the amount of the debtor’s interest in the property.
  • Where there are other legal or equitable interests in the home, the trustee is unable to realise the value of this major asset immediately.
In these situations, the house cannot be sold without a court order. The following must be considered:

  • The interests of creditors.
  • The needs and resources of the spouse.
  • The needs of any resident children.
  • Whether the spouse’s conduct contributed to the bankruptcy.
Same sex partners, whose partnerships are registered under the Civil Partnership Act 2004, have the same rights as a heterosexual spouse. Heterosexual partnerships are not covered at present - they can achieve the status of spouse only by marriage.

The bankrupt’s home – delayed sale

  • Although the trustee is unlikely to be able to obtain an order for possession of the home during the first year, after that time the debtor and their family will probably be evicted by court order. The spouse will retain their share in the property undiminished, only the amount relating to the debtor’s beneficial interest being used to satisfy the bankrupt’s creditors.
  • After one year, the needs of the creditors are assumed to outweigh all other considerations, unless the circumstances are exceptional.
  • Three years after the bankruptcy, the property will generally automatically return to the ownership of the bankrupt (or to the joint ownership of the bankrupt and any other person).