England & Wales

When the court or the adjudicator makes a bankruptcy order, it will pass its files to the Official Receiver (OR), who is a person who works for the Insolvency Service. The OR becomes the trustee of the bankrupt's estate (TIB) on the making of the bankruptcy order. The only exception to this is, if there is already an individual voluntary arrangement, the court can instead appoint the approved supervisor as trustee.

Northern Ireland

When the court makes a bankruptcy order, it will pass its files to the Official Receiver (OR), who is a person appointed by the Department for the Economy and works for the Insolvency Service. The OR has the responsibility of protecting the assets in the bankrupt estate and of administering it, acting as trustee unless an insolvency practitioner is appointed. The bankrupt debtor has to give the OR all the information they request. The OR will interview the bankrupt to clarify the details of the bankrupts' assets and liabilities so that they can prepare a report which is usually made available to the court and the creditors between 8 to 12 weeks after the order is made. If there are material assets in the bankrupt estate the OR will either by calling a creditors' meeting or through the Department for the Economy (DfE) have an insolvency practitioner appointed as trustee instead of themselves.

Passing of ownership in the bankrupt's estate

Ownership of all the assets in the bankrupt's estate passes to (vests in) the TIB automatically on their appointment or if this is the OR, on them becoming the trustee. The main duty of the TIB is to convert the value of the assets in the bankrupt's estate to money. From these proceeds the TIB will first pay their own costs and expenses while the balance available will be used to pay off as much of the 'bankruptcy debts' as possible. The TIB has wide powers to enable them to perform their duties.

Assets of the bankrupt's estate

All assets, including the debtor's sole or principal residence, property acquired after the bankruptcy order and choses in action, in which the bankrupt debtor has an interest, form part of the bankrupt's estate except the following:

• The tools of the debtor's trade (including vehicles
• Assets necessary for the basic domestic needs of the debtor and their family
• Certain types of tenancy
• Assets that the debtor holds on trust for the benefit of others (i.e. assets which the debtor is not entitled to benefit from themselves)
• Compensation for injuries to the debtor's 'body, mind or character', which would include compensation for personal injury or for defamation

In England & Wales, special rules apply to the debtor's beneficial interest in their home or main home, or in the home or main home of their present or former spouse or civil partner. This interest will automatically re-vest in the debtor 3 years after the bankruptcy order unless by then the TIB has:

• realised that interest;
• applied for an order for sale or possession of the home;
• applied for a charge against the property so that any proceeds of a future sale will first be used to pay the debts of the bankrupt estate; or
• agreed with the debtor that their interest can be bought back by increasing the total bankruptcy debt.

Unless the court orders otherwise, the beneficial interest will also re-vest automatically in the debtor if the TIB makes an unsuccessful application in respect of the home.

If the Official Receiver is the TIB they will deal with the debtor's home as follows:

• For a period of 2 years and 3 months from the date of the bankruptcy order no steps will be taken to market the debtor's beneficial interest in their home, although the OR might decide to sell it if approached by a buyer and the offer is in the best interest of the creditors.
• After this period of 2 years and 3 months the OR will only sell the debtor's beneficial interest in the home if that interest is valued at more than £1,000.

If there is sufficient equity and if the OR is not aware of any willing purchaser the OR can apply for a Secretary of State appointment of an insolvency practitioner as trustee of the bankrupt estate to deal further with the property.

If the value of the interest is more than a £1,000 but is insufficient to attract the appointment of an insolvency practitioner, the OR would invite offers from the debtor or another connected person (for example the debtor's spouse) to buy the interest. If no offer is received that would allow transfer of the interest before expiry of the 3-year period, the OR could apply for a charging order against the property.

If the value of the interest is less than £1,000 the OR will take steps to re-vest the beneficial interest in the debtor.

For Northern Ireland, information about what will happen to your home if you go bankrupt is given in this document.

• If an undischarged bankrupt becomes the beneficial owner of any assets (after-acquired assets) they must inform the TIB within 21 days of becoming aware of it. The TIB can then serve a notice on the bankrupt stating that the 'after-acquired' asset will be included in the bankrupt estate for the benefit of the creditors. The 'after-acquired' property will then vest in the TIB as soon as the notice is served on the bankrupt. The TIB must serve this notice within 42 days of becoming aware of the asset. The bankrupt need not inform the TIB if the after-acquired asset is:
• to be a principal residence for themselves, a spouse or partner;
• tools of the debtor's trade;
• assets necessary for the basic domestic needs of the debtor and their family;
• assets that the debtor holds on trust for the benefit of others; or
• property acquired by the bankrupt in the ordinary course of a business carried on by them.

During this period of 42 days the bankrupt may not dispose of any such after-acquired assets without the consent of the TIB.

However, any asset acquired by the debtor after discharge of the bankruptcy order do not vest in the TIB, but belongs to the rehabilitated bankrupt.

Bankruptcy debts

To be recognised as a bankruptcy debt the claim must be payable in money (or money's worth) and arise from an obligation incurred prior to the date of the bankruptcy order. The debt or liability can either be due at the date of the bankruptcy order, after the date of the bankruptcy order or even after the bankrupt's discharge from bankruptcy, as long as the obligation which resulted in the debt or liability occurred before the date of the bankruptcy order. If this is not the case the claim will not be counted as a bankruptcy debt.

A debtor will be under an 'obligation' if, at the date of the bankruptcy order, there was a genuine possibility of a payment liability arising out of some form of legal relationship or duty.

The debt can be contractual, a tortious liability, a liability created by statute, etc. It doesn't matter whether the debt is certain or contingent and whether the amount is fixed or only capable of being determined by rules or opinion.

Any interest due on a bankruptcy debt for the period prior to the bankruptcy order can be proved as part of the bankruptcy debt.

An exception to the above is that child support maintenance can't be a bankruptcy debt.

Proof of debt

In England & Wales, a creditor that wants to recover a debt from the bankrupt's estate must submit a proof to the TIB, unless:

• the debt is a small debt of £1000 or less;
• the creditor has received a notice from the TIB that they intend making a distribution (to pay some amounts to creditors) or declare a dividend (to say how many pence in the pound creditors will get); and
• the creditor has not disputed the amount of the debt shown in the notice.

If the creditor with a small debt disputes the amount shown in the notice, of if they want to vote in any creditors' decision procedure, they'll have to prove in the normal way.

To prove for their debt in bankruptcy the creditor must draw up a proof. A proof of debt is the document on which a creditor submits details of their claim against the bankrupt estate to the TIB for inclusion as a claim against the bankrupt estate. It must be sent to the TIB on or before the last day for proving. The contents of the proof are prescribed and must, for example, show how and when the debt was incurred, the total amount of the claim, the amount of any un-capitalised interest and details of any document that substantiates the debt. Documents that support of the claim need not be attached unless the TIB requests it.

The proof must be dated and authenticated by the creditor or by a person authorised to do so on their behalf.

In Northern Ireland, creditors will complete a Proof of Debt Form (Form 6.40) to prove for their debt in the bankruptcy.

After proofs of debt have been lodged with the TIB they can be inspected by:

• any creditor;
• the bankrupt; and
• by any person acting on behalf of either of the above people.

A creditor that submitted a proof may at any time thereafter change the amount claimed, if the TIB agrees to this. A creditor may at any time withdraw a proof by giving the TIB written notice.

The TIB can admit a proof either for the whole or part of the amount claimed. If they reject all or part of the amount claimed, they must provide the creditor that submitted the proof with written reasons for doing so. If the creditor is not satisfied with the reasons they can, within 21 days from the date of receiving the reasons, appeal to the court to have the decision reversed or varied.

Any other creditor or the bankrupt may also appeal to court, the decision of the TIB on any proof within 21 days of becoming aware of it.

If the TIB believes a proof has been improperly admitted, they can apply to court to have it expunged or the amount reduced. A creditor or the bankrupt may also apply to court to have a proof excluded or reduced if the TIB doesn't want to interfere in the issue.

Powers of the TIB

The trustee in bankruptcy (TIB) has wide powers regarding the bankrupt estate, for example:

• The TIB can carry on any business of the bankrupt so that it can be wound up for the benefit of the creditors.
• The TIB can start or defend legal proceedings relating to the property in the bankrupt estate.
• The TIB can recover assets that the debtor disposed of in the period between presenting the bankruptcy petition to court and the making of the bankruptcy order. Such transactions are legally void unless the court consented or later ratified it.
• The TIB can apply to have any person who appears to have information about the debtor or the debtor's dealings, affairs or property to appear before court to supply that information.
• The TIB can undo transactions which the debtor entered while they were insolvent or that resulted in the debtor becoming insolvent if that transaction involved:
• an asset being disposed of at an undervalue, i.e. at a significantly lower value than it was worth, at any time within 5 years preceding the day of the presentation of the bankruptcy petition;
• giving a preference to any associate at any time within 2 years preceding the day of the presentation of the bankruptcy petition; or
• giving a preference to any other person at any time within 6 months preceding the day of the presentation of the bankruptcy petition.
• The TIB can apply to court to cancel or vary any transaction, whereby credit at an extortionate rate was given to the debtor within 3 years of the bankruptcy order.
• The TIB can disclaim any onerous property found in the bankrupt estate, such as unprofitable contracts, unsaleable property or property that may give rise to a liability to pay money or perform onerous acts. ('Onerous' refers to such things that could have a negative financial impact on the funds in the bankrupt estate that can be available for distribution to the creditors.)
• The TIB can recover pension contributions made by the debtor if making those contributions prejudiced the debtor's creditors. It would be seen to prejudice the creditors if those contributions were made simply for putting the assets beyond the reach of the creditors or if considering the debtor's circumstances, the contributions were of an excessive amount.
• The TIB can apply to court for an income payments order (IPO) whereby the debtor will be required to pay an amount of their income to the TIB for the benefit of the creditors. The amount to be paid would not be so much that it would leave the bankrupt with less than is needed to meet their and their family's reasonable domestic needs.
• The TIB can enter an income payments agreement (IPA) with the bankrupt whereby the bankrupt agrees to pay over an amount of their income to the TIB. An IPA is usually an alternative to an IPO; for example, the TIB may first seek an IPA because it is a simpler procedure, but then apply to court for an IPO if they can't reach agreement with the bankrupt. It is possible, although rare, for an IPO and an IPA to be in place at the same time. Both the IPA and IPO can remain in operation for a maximum of 3 years and therefore will often continue after the debtor's discharge from bankruptcy.