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Bankruptcy and the sale of property is governed by the provisions of the Insolvency Act 1986 (IA 1986) (as amended), the Insolvency (England and Wales) Rules 2016, and the Enterprise Act 2002 (EA 2002).

Once a bankruptcy order has been made by the court, an official receiver will be appointed trustee in bankruptcy (“the trustee”) unless there are enough funds to appoint a private sector insolvency practitioner. As at the date of the order, the “bankrupt estate” vests in the trustee. The bankrupt loses any rights to his/her property apart from any equipment needed for use in his/her business, basic domestic equipment (such as furniture), and certain pension rights. Importantly, creditors can no longer pursue the bankrupt for payment; payment becomes the responsibility of the trustee.

The “bankrupt’s estate” essentially consists of all property which belongs to or is vested in the bankrupt at the commencement of the bankruptcy (i.e. the date the bankruptcy order is made). Property is defined widely in bankruptcy proceedings; there is no geographical restriction on the property which forms the bankrupt’s estate. The function of the trustee is to collect in and sell the bankrupt’s assets and to make payments to creditors in accordance with the Insolvency Act 1986 (IA 1986).

This Commons briefing paper considers those assets that pass to the trustee to form the “bankrupt estate” and the steps that should be taken by the trustee to protect and secure those assets for the benefit of the creditors. In particular, it considers the trustee’s treatment of the bankrupt’s surplus income, pension, and family home. In addition, it considers the treatment of property that becomes available to the bankrupt after the commencement of the bankruptcy order but before his/her discharge (so-called “after-acquired property”). Subject to certain time limitations, after-acquired property may be claimed by the trustee for the benefit of creditors. Finally, this paper considers the circumstances where assets disposed of by the bankrupt before the commencement of the bankruptcy may be reclaimed by the trustee as part of the bankrupt estate. The trustee has a wide range of powers under the IA 1986 to investigate events which took place prior to the bankruptcy. The trustee’s investigations may lead to a court application to overturn transactions at an undervalue or preference.

It is important to note that this Commons paper applies only to England and Wales. Scotland has its own legal procedure for individual insolvency, known as “sequestration”.

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