Bankruptcy Advice in Relation to to Beneficial Interest in Property

Upon the making of a bankruptcy order, all property which makes up the bankrupt’s estate vests in the trustee in bankruptcy (trustee). The trustee is obliged to realise the value of the estate assets and distribute this to the bankrupt’s creditors.

This means that any beneficial interest that the bankrupt had in their family home vests in the trustee. This is done without a transfer of the property. Of course, it is not normally the case that the bankrupt held a 100% beneficial interest in the property. Sometimes there is a mortgage and sometimes more than one person holds a beneficial interest in the property. This confuses matters, but we at Farleys are on hand to simplify the process for trustees.

It is usually the case that the bankrupt’s property is the most valuable asset in the bankruptcy estate. It is therefore important that the trustee follows the correct process in order to realise this asset.

Identify the Beneficial Interests

First, you should identify your beneficial interest in the property, as well as any third-party beneficial interests.

It is important to remember that the beneficial interest in a jointly owned property is not always split equally. Legal advice may be required to ascertain the true division of interest in the property. Land can be held by joint tenants or tenants in common. If the property was held as tenants in common, the trustee should request to see the declaration of trust to examine how the beneficial estate is divided. If there is no such document, the interested third party must show that there was an intention to create this beneficial interest.

Register your interest at the Land Registry

If your interest in the property is an interest under a trust of land, the only way it can be protected is by entering a restriction at the Land Registry. This will mean that any prospective buyer of the property will be notified of the trustee’s interest in the property.

Options

1. See if the trustee’s interest in the property can be sold to a joint owner or family member. If this option is available, it will avoid the delay and cost involved with applying for a possession order.

2. See if the interested third party will voluntarily comply with the sale of the house.

3. Apply to the court for an order for a charge on the property for the benefit of the bankrupt’s estate.

4. Reach an agreement with the bankrupt which excludes the property from the bankrupt’s estate.

5. Apply to the court for an order for possession and sale.

The court will make such order as it thinks is just and reasonable. The usual order the court makes directs the third party to deliver up vacant possession and concur in the sale. A trustee’s application may be dismissed only in exceptional circumstances.

If there is any likelihood of occupational rights existing, the trustee normally waits one year before applying for a sale and possession order. This is so that the court will assume that the interests of the bankruptcy outweigh other considerations, unless there are exceptional circumstances.

Time Limit

Trustees are under a three-year time limit to take action on the property. They should take one of the above listed actions before the time-limit expires.

If a trustee fails to do so, the property falls outside the bankruptcy estate and returns to being the property of the bankrupt.