PROPERTY PERSONAL TO THE BANKRUPT
In addition to items mentioned in the Insolvency Act 1986 that are exempt property [note 1], under the ‘common law of bankruptcy’, property which is peculiarly personal to the bankrupt is also excluded from the bankrupt’s estate and does not vest in the trustee. This part provides an explanation of such property.
The following is an overview of the property considered to be personal to the bankrupt:
It has been ruled that personal correspondence, whatever the subject matter, does not form part of the bankrupt’s estate within the definitions of the Insolvency Act 1986 [note 2]. It was further ruled that, while some of the correspondence may relate to affairs relevant to the administration of the bankrupt’s estate, that does not bring it within the definition of estate. The judgement equated a bankrupt’s personal correspondence to a right of action for damages for libel as being peculiarly personal to him/her and his/her life as a human being [note 2].
It is also possible that the removal and sale of a bankrupt’s personal correspondence may contravene the Convention for the Protection of Human Rights and Fundamental Freedoms (1953) article 8 which provides a right to respect for one’s “private and family life, his home and his correspondence.” This was considered in the case referred to above, but did not form part of the judgement. This aspect has not, otherwise, been considered in a court.
A bankrupt’s rights under a pension scheme are ‘property’ within the meaning of section 436 (see paragraph 30.2), but under separate non-insolvency legislation [note 3] rights and benefits under approved schemes are now excluded from the bankrupt’s estate. This applied to all approved pension schemes where the bankruptcy order was made on a petition presented on or after 29 May 2000 (see Chapter 61 for further guidance on pensions.)
For guidance in including pension payments in an IPA/IPO calculation see Chapter 61, paragraphs 61.25 to 61.26c.
For guidance on what constitutes a right of action see Chapter 31.9, paragraph 31.9.1
For insolvency purposes, property includes intangible assets or things in action [note 5]. Each is essentially a right to claim something from someone else. The only exception to a right of action falling into the bankruptcy estate is if the claim is personal in nature,. For more information on rights of action that either form part of the estate or which remain with the bankrupt, see Chapter 31.9, Part 3.
Assessments made under the provisions of the Child Support Act 1991 are made and enforced by the Secretary of State for the Department of Works and Pensions. Where a bankrupt is owed arrears of payments for child maintenance, the right to take action against the parent owing the child maintenance rests with the Secretary of State, and not with the parent/bankrupt who is owed the money, or the official receiver as trustee. Consequently, any arrears under an assessment are not vested in the bankruptcy estate.
Where a bankrupt receives arrears of child maintenance prior to discharge or whilst currently subject to an IPA/IPO, they do not automatically vest in the trustee, but they should be treated as part of the bankrupt’s income and should be included in any calculation for an IPA/IPO. The CSA payments are additional income to the parent to meet the maintenance costs of any child/children (including food and shelter), the costs of which will be included in the bankrupt’s household expenses. It is possible to claim the lump sum as a ‘single payment’ IPA/IPO but consideration needs to be given to the reasonable domestic needs of the bankrupt and his/her family (see Chapter 31.7).
Where a bankrupt receives arrears of tax credits for a period prior to or post the date of the bankruptcy order, the tax credits are only available to the trustee once they are paid to the bankrupt and therefore notwithstanding the fact that the payments may relate to a period prior to the bankruptcy order the funds do not automatically vest in the trustee. The tax credits should be treated as part of the bankrupt’s income and be included in any calculation for an IPA/IPO. Any lump sum received can also be claimed through an IPA/IPO when received by the bankrupt. It is possible to claim the lump sum as a ‘single payment’ IPA/IPO but consideration needs to be given to the reasonable domestic needs of the bankrupt and his family. This applies equally to Child Tax credits and, other tax credits, (see Chapter 31.7).
The Employment Tribunals hear claims about matters to do with employment including unfair dismissal, redundancy payments, and discrimination. The right to take action for unfair dismissal does not vest in the trustee, as it is personal to the bankrupt and not relating to property [note 10]. It includes a claim for re-instatement to a previous job that only the bankrupt can perform. In the Court of Appeal case that decided this, the bankrupt had also instigated claims for wrongful dismissal and disability discrimination but dropped these, accepting that they were claims for money and therefore vested in the trustee. The distinction between unfair dismissal claims (which do not vest) and wrongful dismissal claims (which do vest), should be noted. See Chapter 31.9, Part 8 for further information on employment claims being brought by the bankrupt.
For guidance on claims to the employment tribunal for discrimination see Chapter 31.9, paragraphs 31.9.172 to 31.9.178.
An individual’s entitlement to receive redundancy and associated compensation arises on the termination of their contract of employment by reason of redundancy. The redundancy payment represents compensation for loss of a job.
Where the employment has ended prior to the date of the bankruptcy order, but the bankrupt is awaiting receipt of the monies, then this is an asset which vests in the official receiver as trustee. If a bankrupt has received notice of redundancy, but not yet had employment terminated at the date of the bankruptcy order, then the right to receive a redundancy payment has not arisen.
Any redundancy monies paid after the bankruptcy order has been made but before the date of discharge does not vest in the official receiver as trustee but may be claimed as after acquired property (see paragraph 31.8.38). The trustee must make a claim to after acquired property within 42 days of becoming aware of that property [note 12] [note 13]. The official receiver must satisfied that the amount claimed as after acquired property does not include any amount payable in respect of wages received whilst an individual works out a notice period, holiday pay or arrears of wages. Amounts received in respect of such payments should be included in any assessment for an income payments agreement/order.
A claim under the Fatal Accidents Act 1976, in existence at the date of the bankruptcy order, will generally vest in the official receiver as trustee, as it is likely to be a hybrid claim. Such an action is likely to be for both the bereavement (personal) and for damages for the bereavement (for the value of the dependency on the person whose death has been caused) (property) [note 16]. If a claim for bereavement only is being made [note 17], this is considered to be personal to the bankrupt and so does not form part of the bankrupt’s estate and does not vest in the official receiver as trustee. Any financial sum awarded may be claimed as after acquired property when the monies change character, if paid before discharge (see paragraphs 31.9.196 and 31.8.60). It would not be appropriate to claim these monies under an IPO/A.
A claim under the Inheritance (Provision for Family and Dependants) Act 1975 is a claim to an interest in a deceased estate on the grounds that the disposition of that estate effected by the deceased’s will, or the law relating to intestacy, does not make reasonable financial provision for the applicant [note 18]. Such a claim is considered personal and as such does not form part of the bankrupt’s estate and does not vest in the official receiver as trustee. Any financial sum awarded may be claimed when received by the bankrupt as after acquired property, when the monies change character, see Chapter 31.8 and paragraph 31.9.196. A claim to after acquired property must be made within 42 days of the trustee becoming aware of the property [note 12, 13]. It would not be appropriate to claim these monies under an IPO/A, unless the payments were being made periodically by order of the court.
Where a bankrupt makes an application for ancillary relief in divorce proceedings, the right to bring proceedings and the application is personal to the bankrupt, and does not vest in the trustee. Therefore any ongoing application for relief can continue, or the bankrupt can commence action following the making of the bankruptcy order. Where an award is made prior to discharge, then the trustee can claim it as after acquired property, when the monies change character (see paragraph 31.9.196), the claim must be made within 42 days of the trustee becoming aware of the property [note 12, 13] or as part of an IPA/IPO [note 19].
Where a person is injured as a result of a violent criminal act they have a right to seek compensation under the Criminal Injuries Compensation Scheme, which, in appropriate cases, pays a sum of compensation for the pain and suffering and, also, for any resultant loss of earnings.
It has been ruled that an award under this scheme does not fall under the definition of ”property” under the Act and it is personal to the bankrupt and consequently cannot be claimed as after-acquired property [note 8]. If the bankrupt receives an award after the bankruptcy order but prior to discharge, the monies may be claimed as after acquired property only when they change character, see paragraph 31.9.196 and Chapter 31.7. It would not be appropriate to claim these monies under an IPO/A.
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