The three-year limit for a trustee to deal with the family home can be extended if the bankrupt did not disclose their interest.
Summary
Under section 283A of the Insolvency Act 1986, a trustee in bankruptcy has three years to deal with the bankrupt's interest in the matrimonial home. After that, any interest re-vests in the bankrupt.
In this case, the bankruptcy trustee was granted permission to realise the property of Ms Khilji (the bankrupt) later than three years from the date of the bankruptcy order. The Official Receiver was not clearly notified of the interest within the permitted three-month period, meaning the time to deal with the property could be extended.
This case explores the level of knowledge required by the trustee to start the clock running.
Background
Ms Khilji’s husband died intestate in 2014. Ms Khilji continued to live in the family home under occupational rights.
In July 2018, Ms Khilji was made bankrupt. She told the Official Receiver that while she had paid the mortgage on the family home after her husband’s death, she did not think she was ever a joint owner.
There was also an ongoing dispute over the property involving Mr Khilji’s four sons.
Possession proceedings
The estate administrator began possession proceedings in April 2019. In September 2019, Ms Khilji submitted a defence and counterclaim to the possession, arguing that she held a beneficial interest in the home. At a later hearing in December 2021, she also argued that the interest in the property should re-vest as three years had passed since the bankruptcy order.
The County Court awarded possession to the administrator under intestacy law, but suspended enforcement of this pending a further judgment on the ‘use it or lose it’ defence.
The court's decision
The High Court rejected Ms Khilji's defence as her evidence did not give the Official Receiver the level of knowledge necessary to be aware that an interest in the matrimonial home existed.
Evidence of the bankrupt's interest
Although the bankruptcy trustee was aware of the intestacy and matrimonial home, this was not sufficient to prove that an interest existed for Ms Khilji. The trustee was not expected to make this leap.
Ms Khilji had stated there were disputes over the estate, and in the Official Receiver interview stated: “I don't think I was ever joint owner of this property”.
When the time limit runs from
The court held that the earliest point the trustee would have been aware of any interest was at the point Ms Khilji declared this in her defence and counterclaim to possession on 6 September 2019. Under section 283, the three-year period would run from this date, and any possession or enforcement action by a trustee on behalf of the Official Receiver would therefore be in time.
The court found that none of the following met the definition of an ‘interest’ under section 283A and thus were unable to start the clock running:
a claim in intestacy for the matrimonial home
occupation rights under family law
contributions to the mortgage
Comments
To avoid delay in re-vesting of the family home, bankrupts should be prepared to provide sufficient detail about any property including that undergoing probate. Failure to do so could see the three-year re-vesting window extended.
The case also emphasised that although a claim in intestacy is not capable of meeting the definition of ‘interest’ under section 382A, the bankruptcy trustee could still treat this claim as property under section 436.