CONSIDERING CLAIMING AFTER-ACQUIRED PROPERTY

PART 3

March 2009

CONSIDERING CLAIMING AFTER-ACQUIRED PROPERTY

31.8.32 Consideration of after-acquired property

This part of the chapter gives examples of property that may, or may not, be claimed as after-acquired property.  As outlined in paragraph 31.8.8, the definition of “property” in the Act is quite broad.  That said, however, there are certain types of property that would not be claimed as after-acquired property, either for statutory reasons (see paragraph 31.8.33), or because the property is more properly classified as income and should, therefore, the claimed under an IPA/IPO (see Chapter 31.7).

 

31.8.33 Property not considered being after-acquired property

Whilst all property acquired by a bankrupt between the making of the order and discharge may be described as after-acquired property for the purpose of the provisions of the bankrupt’s duty to notify the trustee [note 1(see paragraph 31.8.4), not all property is claimable by the trustee.

Particularly, the trustee may not claim [note 2] [note 3]:  

  • Such tools, books, vehicles and other items of equipment as are necessary to the bankrupt for use personally by him/her in his/her employment.
  • Such clothing, bedding, furniture, household equipment and provisions as are necessary for satisfying the basic domestic needs of the bankrupt and his/her family.
  • Property held by the bankrupt on trust for any other person.
  • The right of nomination to a vacant ecclesiastical benefice
  • A dwelling house which has re-vested in the bankrupt under the “three-year” rule (see paragraph 31.3.72).

See also Chapter 30 Part 1 

 

31.8.34 After-acquired property of excess value

Where a bankrupt acquires property which would otherwise be subject to one of the first two exceptions outlined at paragraph 31.8.33 (tools of trade, household effects) and it appears to the trustee that the realisable value of the property exceeds the cost of a reasonable replacement then the trustee may claim the property on those terms (i.e., that the sale proceeds are used to provide the reasonable replacement) [note 4] (see paragraph 31.2.26).

See paragraphs 30.52 to 30.55 for matters to be taken into consideration before claiming property of excess value.

Where property of excess value is claimed, the claim should be under section 308, rather than section 307 (as for other types of after-acquired property) – though all other requirements (particularly, the time limit – see paragraph 31.8.12) [note 5] are equally applicable to this type of claim.  The standard form of claim [note 6] (see paragraph 31.8.14) should be amended to show the section under which the claim is being made. See also Chapter 30 Part 3.

If the bankrupt sells property that has been treated as exempt, or would have been treated as exempt had it been in the bankrupt’s possession at the date of bankruptcy, then such sale proceeds as are not required to provide a suitable replacement may be claimed as after-acquired property.  The official receiver should claim “such monies as are not required to provide a suitable replacement for [the item sold]” (see paragraphs 31.8.12 and 31.8.14), monitor the situation to ensure that a replacement item is purchased and lay claim to any amount not used in the purchase of the replacement item.  

 

31.8.35 Awards from the Criminal Injuries Compensation Authority (amended February 2011)

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 7].

Should the monies awarded ‘change character’ during the period of bankruptcy (by, for example, the purchase of a capital asset – see paragraph 31.9.196), that purchased item may be claimed.

 

31.8.36 National Lottery wins

Possibly the classic example of after-acquired property would be a win on the National Lottery.  Where the official receiver receives information to suggest that a bankrupt may have had such a win, he/she can make enquiries of the National Lottery (Camelot) on 01923 425174 (contact: Tony Proctor).  In order to provide information confirming or denying the win, Camelot will need to have sight of the bankruptcy order and no meetings notice confirming the official receiver’s appointment as trustee, or an authority completed by the bankrupt.

The National Lottery usually pays out monies relating to wins within two or three days of the win.  Where a payment has yet to be made, Camelot can withhold payment on the request of the official receiver where the bankruptcy order confirming the official receiver’s appointment or bankrupt’s authority is provided.

 

31.8.37 Inheritances as after-acquired property (amended June 2009)

One of the most likely circumstances where the official receiver will make use of the provisions relating to claiming after-acquired property will be where the bankrupt receives a bequest under a will.  The key date in this respect is the date of the death of the person who made the will.  So long as the person dies prior to the bankrupt’s discharge, the property bequeathed can be claimed even where it is not received by the bankrupt until after his/her discharge.

Where, however, the property is left to the bankrupt under a protective trust the trustee will not be able to claim the property.  A protective trust is usually created in relation to real estate property and gives the beneficiary of the trust a time-bound interest (such as a right to occupy to a certain date) in the property without having the right to sell it.

Where the official receiver encounters a protective trust, and the property is of sufficient value to justify it, he/she should seek legal advice to establish the validity of the trust and explore any means of challenging it.

Where a person dies intestate (that is, without making a will that covers all, or any, of their property), the portion of their estate not covered by a will is distributed according to provisions in the Administration of Estates Act 1925.  Where a bankrupt is entitled to property under such a distribution, this entitlement arises on the death of the person to whom the intestacy process applies.  If, therefore, the death occurs during the period of bankruptcy any property distributed to the bankrupt may be claimed as after-acquired property.  Where the extent of the distribution is unknown, the official receiver may have to make claim to the property without full information which may involve the claim covering items of minimal value that may be uneconomic to realise, but it is better to act in this way than risk losing a potentially valuable asset (see paragraph 31.8.18).

See also paragraph 31.8.62 regarding claims under the Inheritance (Provision for Family and Dependents) Act 1975.

 

31.8.38 Redundancy payments and payment in lieu of notice (amended September 2012)

A redundancy payment represents compensation for loss of a job, rather than loss of earnings [note 8] [note 9].  This is easily rationalised when it is considered that the award is made based on fixed rules (particularly, length of service and past salary) regardless of whether or not the redundant person secures alternative employment.  The level of the award will be the same even if that alternative employment is immediately secured and obtained at a higher wage.

A redundancy payment received during the period of bankruptcy would, therefore, be considered as after-acquired property (rather than income) and should be claimed by the trustee accordingly

Similarly, a payment in lieu of notice (which is compensation paid where the employer elects not to give the statutory period of notice) is not considered to be income and should be claimed as after-acquired property where received during bankruptcy [note 9a] (see paragraph 31.7.38). An individual who receives payment in lieu of notice is entitled to claim state benefits immediately and payment is not affected by the receipt of the payment in lieu of notice.

Compensation notice pay (CNP) is a form of payment in lieu of notice and would also be claimed as after-acquired property (rather than income).

See Chapter 30, paragraph 30.116 for guidance where the employment ended prior to bankruptcy, but the relevant payment has not yet been made.

 

31.8.39 Compensation for change in contract of employment

Where a bankrupt receives compensation for a change in his/her contract of employment (usually, this will be in respect of a reduction in income), this should be claimed as after-acquired property, even where repayment conditions are attached to the award. 

 

31.8.40 Build up of funds in the bankrupt’s bank account (amended May 2009)

Where there has been a gradual build up of funds in the bankrupt’s bank account it is likely that the source of those funds will have been a from a surplus of income and the official receiver, as trustee, should consider laying claim to those monies in the account that are in excess of those necessary to satisfy the basic domestic needs of the bankrupt and his/her family.  Where the trustee wishes to lay claim to monies of this nature, the claim should be under an IPA or IPO (see Chapter 31.7), rather than as after-acquired property, and an IPA/IPO in to claim the monthly surplus should also be considered.

Where the source of the funds is from some other (non-income) source (for example, small gambling wins), then the monies can be claimed as after-acquired property. 

 

31.8.41 Rights of action (amended February 2011)

The only circumstance where a right of action itself would be claimable as after-acquired property would be where the event leading to the action had occurred during the period of bankruptcy.  In these circumstances, however, it is better that the claim is left with the bankrupt for him/her to pursue with any payment received by the bankrupt  (other than the element which is personal to the bankrupt -see Chapter 31.9, Part 3) later claimed as after-acquired property.

The official receiver, as trustee, should write and inform the bankrupt that the right of action will not be claimed for the benefit of the estate. The official receiver should also inform the bankrupt in the letter that should any payment be made as a consequence of successfully pursuing the claim the bankrupt must inform the official receiver within 21 days of receipt of the payment [note 10]. See Chapter 30, paragraphs 30.103 to 30.105

 

31.8.42 Right of action event post bankruptcy  - payment received after discharge (amended February 2011)

Where the event leading to the right of action happens during the period of bankruptcy and the right of action was claimed as after acquired property, any related (non-personal) award would be claimable as after-acquired property even if it were awarded or paid after discharge, as it is the right of action and not the monies, which constitutes the property.

 

31.8.43 Right of action – personal award payment received pre-discharge (amended February 2011)

Where damages relating to a personal action are paid to the bankrupt during the period of bankruptcy they may only be claimed as after-acquired property if they were to change character during the period of bankruptcy– for example, if they were invested in property, or used to purchase another asset (see paragraph 31.9.196) [note 11].

 

31.8.44 Damages following assignment of a right of action (amended February 2011)

As explained in Chapter 31.9, Part 6 it is open to the official receiver, as trustee, to assign a right of action back to the bankrupt where it is appropriate to do so.  Where a right of action is assigned back to a bankrupt, the trustee’s rights transfer to the bankrupt under the assignment and it would, therefore, not be possible, or appropriate, to lay claim to any resultant award. 

When undertaking the assignment of a right of action, it is open to the trustee to negotiate a payment in the event of a successful conclusion, as part of the assignment (see paragraph 31.9.107).  Such a payment would vest automatically in the trustee, rather than being after-acquired property, as this would simply relate to the sale of a bankruptcy asset (that is, the right of action).

 

31.8.45 Pensions (amended May 2009)

It is extremely unlikely that it would be appropriate to claim a payment under a bankrupt’s pension as after-acquired property, even where a lump sum is paid to the bankrupt.  The vast majority of pension schemes (private and occupational) encountered by official receivers are exempt by reason of statute and, for those that are not (primarily, those relating to bankruptcies where the petition was presented before 29 May 2000), it is likely that the pension policy or arrangement existed prior to the making of the bankruptcy order, making the pension an asset at the time of bankruptcy and automatically vesting any related payments in the trustee.

Pension payments already being received by the bankrupt as at the date of the making of the bankruptcy order, or which become due to the bankrupt during the period of bankruptcy, should be considered as income in any IPA/IPO assessment (see Chapter 30 Part 5).

The only circumstance where it is likely to be appropriate to claim a payment in respect of a pension as after-acquired property is where, during the period of bankruptcy, the bankrupt becomes entitled to a death benefit under the pension arrangements of a third party.

Please see Chapter 61 for further information on pensions and the claiming of funds payable under pension schemes. 

 

31.8.46 Tax refunds

Where a bankrupt receives a tax refund under the nil tax (NT) coding procedure operated by HM Revenue and Customs, it should not be claimed as after-acquired property.  Instead, it should be claimed based on the authority [note 12] given by the bankrupt at the initial stages of the case.

In the unlikely event that the bankrupt receives a tax refund for a period after the ending of the NT coding period, but before discharge from bankruptcy, this may be claimed under an IPO or IPA (see paragraph 31.5.71).  In reality, this is only likely to occur where the bankrupt is subject to a suspension of his/her period of discharge from bankruptcy (see Chapter 13, Part 9 and Chapter 22, Part 4 for further information on suspension of discharge). 

 

31.8.47 Property under a solicitor’s lien

In a bankruptcy a solicitor’s general lien is exercisable only on property passed to him/her before the estate vests in the trustee (i.e., the period when the bankrupt is still the legal owner).  A solicitor cannot, therefore, claim a lien against after-acquired property coming into his/her possession, even where the trustee has yet to claim it, as the trustee’s title to the property dates back to the date it was acquired by, or devolved upon, the bankrupt.  A lien would, however, be valid if the solicitor was unaware of the bankruptcy at the time that the property came into his/her possession [note 13]. 

Where the official receiver encounters a solicitor claiming a lien over after-acquired property, and the property is of sufficient value to justify it, he/she should consider seeking legal advice to establish the validity of the lien and explore any means of challenging it. 

 

31.8.48 Property transfers

Where the legal title to a solely owned property, or beneficial interest to a jointly-owned property, has been transferred back to the bankrupt under the low-cost conveyancing scheme (see Chapter 31.3, Part 5 for more information on this) it would not be appropriate for the property to be reclaimed by the trustee as after-acquired property.  Once the property has been transferred there is an understanding that, subject to mortgage commitment, the bankrupt is entitled to enjoy unhindered ownership of the property without the official receiver, as trustee, making a claim over it.

If, during the negotiation of the transfer, the official receiver becomes aware that the transfer is to be funded out of property acquired by the bankrupt after the date of the making of the bankruptcy order then, of course, the official receiver, as trustee, may lay claim to the funds as after-acquired property – even if this may defeat the property transfer.  If, in these circumstances, the property transfer has already been completed the official receiver, as trustee, should consider securing an equivalent interest in the property by way of the procedures outlined in Part 7 of Chapter 50.   

 

31.8.49 Property adjustment under matrimonial proceedings

Where a property adjustment order (or similar) is made after the date of the bankruptcy order against a bankrupt’s spouse or civil partner requiring him/her to settle property on, or transfer property to, the bankrupt, the official receiver, as trustee, should claim the awarded property as after-acquired property.  This may be subject to the wording of the order where, for example, there is some element protecting the interests of children.

The official receiver should ensure that both parties, and the court, are aware of his/her interest in any property awarded to the bankrupt.

 

31.8.50 Shares as after-acquired property (amended May 2009)

If a bankrupt receives shares from a Save As You Earn scheme (SAYE) during the period of bankruptcy, the shares may be claimed as after-acquired property.  Any dividends payable in relation to those shares can then be claimed in the normal way as the shares will, as a result of the claim, have vested in the estate.  There is no need for a separate after-acquired claim in respect of the dividends.

Similarly, dividends being received in relation to shares held by the bankrupt as at the date of the making of the bankruptcy order, would be automatically due to the trustee as assets arising from the possession of the shares vesting in the estate.

Where the bankrupt receives shares following a demutualisation, merger or similar of a financial institution of which they are a member, the shares are considered to be a personal asset – being awarded in exchange for them giving up personal membership rights.  It is considered that the shares are held on trust by the bankrupt for the trustee in bankruptcy.  As beneficiary, the official receiver could, generally, require the bankrupt to sell the shares and realise the bankruptcy estate interests.  Where the value of the shares makes it worthwhile, the official receiver should lay claim to the proceeds of the shares as after-acquired property.  

 

31.8.51 Copyright and royalties (amended June 2009)

Copyright is effective from the date that the work to which it relates is created.  If a bankrupt creates a work during the period of his/her bankruptcy it is open to the trustee to lay claim to the copyright as after-acquired property. 

Where royalties are being received by a bankrupt in relation to a copyright held as at the date of the making of the bankruptcy order, or claimed as after-acquired property, such payments should properly be claimed as assets in the bankruptcy. 

(See Chapter 31.10, paragraphs 31.10.50 to 31.10.67 for further information on copyright).

 

 

31.8.52 Engagement and wedding rings

The general principle in law is that an engagement ring constitutes a gift conditional on an event taking place [note 14] [note 15].  In other words, ownership of the ring does not pass to recipient until the marriage (or, as the case may be, civil partnership) takes place.  If the marriage does not take place then the ring remains the property of the person who provided it.  In the case, therefore, that a bankrupt is given an engagement ring prior to the making of the order, and the marriage takes place during the period of bankruptcy then the ring may be claimed as after-acquired property.

The ring should, of course, have sufficient value to warrant the costs of valuation and sale, and official receivers should not take engagement rings as a matter of course.  Having claimed the ring, it may be possible to effect the sale of the ring to a family member or other third party introduced by the bankrupt.

Weddings rings generally have little intrinsic financial value tending, as they do, to be simple gold bands.  Consideration has been given to the symbolism of a wedding ring and, given these circumstances; it is unlikely to be appropriate for the Official Receiver to claim a wedding ring as after-acquired.

In circumstances where the wedding ring is unusual and has an intrinsic financial value (for example, it may be set with precious stones) then the official receiver may consider claiming the ring and providing a replacement gold band.  

 

31.8.53 Loans as after-acquired property

After-acquired property is not limited to windfalls, and the relevant provision of the Act can be taken to apply to a commercial transaction – in particular the obtaining of a loan [note 16].

Where the official receiver becomes aware that an undischarged bankrupt has obtained a loan, this should be claimed as after-acquired property in the usual way.  This advice does not apply to Student Loans – see paragraph 31.8.54.

See also paragraph 25.6 for more information on considerations where a bankrupt has obtained credit whilst undischarged.

 

31.8.54 Student loans

No part of a student loan may be claimed as after acquired property [note 17].  

 

31.8.55 Hire purchase or conditional sale property treated as exempt (amended August 2009)

Where an item subject to hire purchase or conditional sale has been treated as exempt property (see paragraph 30.44), and the hire-purchase company chooses to exercise its right under the agreement to repossess the item, any surplus resultant can be claimed by the trustee as after-acquired property.

Where, however, the reason for treating the vehicle as exempt still exists (for example, if the bankrupt still needs a vehicle in connection with his/her employment), then it would be appropriate for the surplus, or a portion of the surplus, to remain with the bankrupt to allow for the purchase of a replacement item (see paragraphs 30.52 to 30.54).   

 

31.8.56 Property acquired in the ordinary course of business (amended September 2010)

The provisions relating to the giving of notice in respect of after-acquired property (see paragraph 31.8.4) do not relate to property acquired by the bankrupt in the normal course of business (i.e., the buying and selling of goods and the passing of business monies) [note 18]. In order to give the trustee some control over this, the Rules do require that the bankrupt provide the trustee, with information relating to the business showing the total of goods bought and sold and the profit or loss arising. For cases where the petition was presented before 6 April 2010 the information has to be provided at least every six months

For cases where the petition was presented on or after 6 April 2010, the amended Rules remove the need for the bankrupt to supply the above information every 6 months and allow the trustee discretion as to when he/she requests profit and loss information from a bankrupt regarding his/her business.  

The trustee has power to require fuller details (including accounts) where appropriate [note 19].  In this way the trustee can monitor the bankrupt’s business and lay claim to profits, though this would be claimed as income (see Chapter 31.7)

It is possible that an excessive amount of stock being carried by the business could be claimed as after-acquired property.

See also paragraph 31.8.57 regarding capital sums invested in the bankrupt’s business.

 

31.8.57 Capital sums invested in a business

If a capital sum acquired by the bankrupt is invested in his/her business, the trustee may claim this or the assets acquired with such monies if they can be traced.  There may be a problem if the investment made in the business had been used to finance current trading without the acquisition of assets.  Where, for this reason, it is not possible to lay claim to the funds, the official receiver should consider applying for an order suspending the discharge from bankruptcy until the value of the property lost has been restored to the estate (see Chapter 13, Part 9 and Chapter 22, Part 4 for further information on applying for a suspension of discharge).

See paragraph 31.8.56 for information on property acquired in the ordinary course of business.

 

31.8.58 Council “right to buy” as after-acquired property

It is unlikely that a bankrupt will be able to exercise a “right to buy” a council property during the term of his/her bankruptcy, due to restrictions in the relevant legislation [note 20].  It is, therefore, unlikely that the exercising of this right could give rise to an asset that may be claimed as after-acquired property. See also Chapter 30, paragraphs 30.84 to 30.91.

 

31.8.59 Employment bonuses

Where a bankrupt receives a bonus from his/her employer, this should be claimed by the trustee under an IPA/IPO, rather than as after-acquired property - as a payment in this respect comes under the definition of income in the Act [note 21].

 

31.8.60 Claims under the Fatal Accidents Act 1976

Where a death is caused by a wrongful act or neglect such as would (if death had not ensued) have entitled the person injured to bring an action for damages, the person liable shall still be liable to an action for damages despite the death of the person injured [note 22].  Such action is for the benefit of the dependants of the person whose death has been caused [note 23].  Where an action is being carried on by a bankrupt as at the date of bankruptcy, then the action would vest as an asset in the estate and the information provided in Chapter 31.9 concerning rights of action should be followed.  

A claim may include (or consist entirely) of a claim for damages for bereavement [note 24].  A claim which is entirely for bereavement is personal to the bankrupt and would not form part of the bankruptcy estate.  Where a claim is partly in respect of bereavement and partly in respect of injury, then the claim would vest and the advice in Chapter 31.9 regarding hybrid claims should be followed.  

Where the right of action commences during the period of bankruptcy (i.e., where the person’s death is during the period of bankruptcy), then this would constitute after-acquired property and related damages should be claimed accordingly (see paragraph 31.8.41).

 

31.8.61 Official receiver can not claim a re-vested property as after-acquired (amended November 2009)

Where a property re-vests in a bankrupt under the provisions in the Act relating to the family home (see Chapter 31.3, Part 3), it can not subsequently be claimed as after-acquired property.  This might happen where a property re-vests in a bankrupt following the expiration of the three-year period in which the trustee must deal with the property and, in the interim, the bankrupt has been made bankrupt again – remaining bankrupt as at the time of the re-vesting [note 25].

The re-vested property would, of course, form part of the estate of any bankruptcy commencing after the date of re-vesting and the trustee of that bankruptcy would be free to deal with it in the normal way.

 

31.8.62 Claims under the Inheritance (Provision for Family and Dependants) Act 1975

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 26]. 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 paragraph 31.8.43 and Chapter 30, paragraph 30.111).

 

[Back to Part 2 – Claiming after-acquired property]