What is the role of a trustee in bankruptcy?

Ownership of all the assets in your '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 your 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.

In England & Wales, when 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 your estate (TIB) on the making of the bankruptcy order. The only exception to this is, if you already have an individual voluntary arrangement, the court can instead appoint the approved supervisor as trustee.

In 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 your bankrupt estate and of administering it, acting as trustee unless an insolvency practitioner is appointed. You have to give the OR all the information they request. The OR will interview you to clarify the details of your 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 your 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.

What are the assets of your bankrupt estate?

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

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

Special rules apply to your beneficial interest in your home or main home, or in the home or main home of your present or former spouse or civil partner. This interest will automatically re-vest in you 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 your bankrupt estate; or
• agreed with you that your 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 you if the TIB makes an unsuccessful application in respect of the home.

If the Official Receiver is the TIB they will deal with your 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 your beneficial interest in your 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 your 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 your 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 you or another connected person (for example, your 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 you.

If you, while you are an undischarged bankrupt, become the beneficial owner of any assets (after-acquired assets) you must inform the TIB within 21 days of becoming aware of it. The TIB can then serve a notice on you stating that the 'after-acquired' asset will be included in your 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 you. 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 my 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 assets you acquire after discharge of the bankruptcy order, do not vest in the TIB, but belong to you.

For Northern Ireland, information about what will happen to your home if you go bankrupt can be found on the GOV.UK website (opens a PDF).

What are 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 by you prior to the date of your 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 your 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.

You 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 your 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.

How is a debt proven in the bankrupt estate?

A creditor that wants to recover a debt from your bankrupt 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 or declare a dividend; 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 and send it to the TIB on or before the last day for proving.

In England & Wales, 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 need to 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;
• you (as the bankrupt); and
• 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 it. 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 may, within 21 days from the date of receiving the reasons, appeal to the court to have the decision reversed or varied.

You and any other creditor 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 that a proof has been improperly admitted, they can apply to court to have it expunged or the amount reduced. You or a creditor may also apply to court to have a proof excluded or reduced if the TIB doesn't want to interfere in the issue.

What are the powers of the TIB?

The trustee in bankruptcy (TIB) has wide powers regarding your bankrupt estate, for example some of these are that they can:

• Carry on any business you have so that it can be wound up for the benefit of the creditors.
• Start or defend legal proceedings relating to the property in your bankrupt estate.
• Recover assets that you disposed of in the period between making the bankruptcy application and the granting of the bankruptcy order. Such transactions are legally void unless the court consented or later ratified it.
• Apply to court to make any person, who appears to have information about you or your dealings, affairs or property, appear before court to supply that information.
• Undo transactions which you entered while you were insolvent or that resulted in you 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 your bankruptcy application; or
• giving a preference to any associate at any time within 2 years preceding the day of your bankruptcy application;
• giving a preference to any other person at any time within 6 months preceding the day of your bankruptcy application.
• The TIB can enter into an income payments agreement (IPA) with you whereby you agree to pay over an amount of your income to the TIB. An IPA is usually an alternative to an income payments order (IPO) granted by the court; 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 you. 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 your discharge from the bankruptcy.