March 2009


30.25 Introduction

This part provides an explanation of property that may be claimed as exempt by the bankrupt. For the definition of exempt property and the process of exempting property, see Part 1.

Motor vehicles may be claimed as exempt property under certain circumstances, but are not covered in this Chapter. Please refer to Chapter 31.2, Part 3 for information specifically about exempt motor vehicles.


30.26 Items necessary for satisfying a basic domestic need (amended May 2010)

The legislation provides that ‘such clothing, bedding, furniture, household equipment and provisions’ are exempt from a bankruptcy estate on the grounds that they are necessary for satisfying the basic domestic needs of the bankrupt and his/her family [note 1]. A motor vehicle may now be claimed in exceptional circumstances for the domestic needs of the bankrupt and his/her family as well as for his/her employment, business or vocation (see Part 6).

It is rare for household items to be claimed and sold by the official receiver as they generally have little second hand value. In cases where the official receiver is aware that the bankrupt’s home contains items of a high resale value, such as antiques, these should be claimed for the estate (see Part 3).


30.27 Bankrupt’s income not exempt

A bankrupt’s income is not covered by the definition of exempt property, although it is recognised that a bankrupt should be allowed to retain sufficient income to meet his/her reasonable domestic needs, and that of his/her family. For information on income payments agreements/orders (IPA/IPO’s) see Chapter 31.7.


30.28 ‘Household equipment’ and electrical goods (amended May 2010)

It is not considered that items such as stereo equipment, a television, a video recorder and computer are necessary to satisfy the basic domestic needs of the bankrupt and his/her family. Although such items will not therefore be considered exempt property under the heading of household equipment, the usual considerations concerning their likely realisable value and the prospective benefit to the estate should be considered before agents are instructed to deal with them. Depending on the nature of the bankrupt’s work, such items might, however, be exempt as necessary to his/her employment, business or vocation e.g. a computer.


30.28a Claim to treat a computer as exempt property

Where the official receiver is dealing with a claim for a computer to be treated as exempt property, he/she will have to take into account not only the usual considerations (see Part 2) but also the provisions of the data protection legislation (see paragraph 30.28b) and the possible need to retrieve the computer to meet his/her own investigatory duties when deciding how to respond (see Chapter 66, Part 2).


30.28b Data protection considerations when dealing with a claim to treat a computer as exempt property

By virtue of the vesting of the estate, the official receiver becomes data controller of any third-party data collected by the bankrupt (see paragraph 81A.40) and, in that position, he/she has a duty to ensure that the data is protected and used appropriately.

Where the official receiver, as trustee, is dealing with a claim to treat a computer as exempt, he/she must establish whether the computer contains third-party personal data (see paragraph 81A.03). 


30.28c Data used only in conducting business – possible to exempt computer

If the data collected by the bankrupt was collected in the course of conducting his/her business, and he/she gives a written undertaking to the official receiver that it will only be used in connection with that business, then it will be possible to treat the computer and the data contained thereon as exempt property (see paragraph 30.28e). 


30.28d Data no longer being stored for original purpose – not possible to treat computer as exempt

Where the bankrupt has collected third-party data and it is no longer being stored for the original purpose of its collection, it will not be appropriate to treat the computer as exempt property [note 1a] [note 1b] and it must be recovered in line with local office procedure.

Data kept by the bankrupt for the purpose of his/her personal, family or household affairs are exempt from the principles of data protection legislation [note 1c].


30.28e Treatment of a computer as exempt property if it contains no third party data

If the computer has no third party data (see paragraph 30.28b) then the computer may be treated as exempt, assuming that all the usual conditions for property being treated as exempt are met (see Part 2) and that the computer does not contain accounting records required by the official receiver in relation to his enquiries/investigations into the affairs of the bankrupt (see Chapter 66).


30.28f Other mattes to consider when dealing with a claim for a computer to be treated as exempt property

It is possible that recovery of the computer will be necessary to assist the official receiver in his/her enquiries into the bankrupt’s affairs (see Chapter 66).  An additional consideration is that a client list (or similar) may be a saleable asset (see paragraph 81A.45).


30.29 Items necessary for use in employment (amended May 2010)

The legislation provides that ‘such tools, books, vehicles and other items of equipment’ are exempt from bankruptcy on the grounds that they are necessary to the bankrupt for use personally in his/her employment, business or vocation. This is most likely to be hand tools such as that used by a builder or plumber. Books that are necessary would not include, for example, books held by a bookshop as stock, or books of account, which contain financial information required by the official receiver. For information on the terms ‘other items of equipment’ see paragraph 30.35 below.


30.30 ‘Necessary... for use personally’

Where a bankrupt claims that items are necessary either to satisfy his/her personal or family’s basic domestic needs or for use personally in his/her  employment, business or vocation, the bankrupt should be asked to make a statement explaining the circumstances justifying the claim. For an item to be ‘necessary’ to them for use in their employment, business, etc., it should be really needed for their personal use but the meaning of ‘necessary’ should not be restricted to ‘indispensable’. The phrase ‘for use personally’ does not mean that the bankrupt should have the exclusive use of the item but assets used by, for example, employees and not by the bankrupt are not exempt property.

In a case heard by the court, £10,000 of records were seized from a disc jockey (DJ) when executing a judgment debt (rather than a bankruptcy case) [note 2]. The court found that the records were tools of the debtor’s trade and so exempt from seizure. Similar exemption provisions apply to the types of assets that can be seized in the execution process as to that of bankruptcy (see paragraph 9.65). As the debtor’s trade was one of DJ, he would be using the records personally.


30.31 Practical scenario – ‘for use personally’ (amended May 2010)

In a case dealt with by an official receiver, a bankrupt claimed that she needed to retain four of the six horses she owned for her personal use in the riding school that she personally ran. If the horses were considered to be exempt property the business was able to continue, as there were no other assets of value. The official receiver needed to make a decision as to the bankrupt’s claim as to whether the horses comprised exempt property and if so whether all of the horses should be treated as exempt. Two of the horses were not claimed as exempt, as they were not yet broken in, and had not been used in the riding school at that point. A third party made an offer for these two horses, which was accepted by the official receiver.

Initially, the official receiver considered that four horses could not be used personally by the bankrupt, and that two horses should be sufficient for her to continue trading – one for the bankrupt and one for the pupil. On further discussion with the bankrupt, it was established that animal welfare legislation only permitted horses to work for three hours a day. The bankrupt also demonstrated a need for horses of differing sizes for different ages and abilities of her pupils, and the bankrupt owned two larger horses, and two smaller ones for this purpose. A large proportion of the lessons were at the weekend, and so two sets of horses were needed to comply with animal welfare legislation as well as to satisfy the differing sizes needed by families. Without four horses, the bankrupt would have had to reduce her business and income. Therefore a decision was taken to treat the remaining four horses as exempt property as they were necessary for the bankrupt for use personally in her employment. The four horses were valued at £3,600 and it was not considered that they could be replaced with cheaper alternatives for the benefit of the estate (see Part 3 for general guidance on claiming items of excess value).


30.32 Where business is one of hire – practical examples (amended May 2010)

In a case dealt with by the official receiver, the bankrupt was running a scaffolding business and consideration was given as to whether or not scaffolding poles could be claimed as exempt property. The business was essentially two-fold, one of hiring out the scaffolding equipment, and another of erecting and dismantling it. In effect, the bankrupt was hiring the scaffolding poles out and so would not be personally using them. It was considered that the tools of the trade of the bankrupt would be the hand tools needed to erect and dismantle the scaffolding, but if the business was one of solely hiring, then the equipment would also be necessary for trade to continue, although would not be used ‘personally’ by the bankrupt.

Where the bankrupt can reasonably make a living from just erecting and dismantling scaffolding (which is a trade in itself) then the scaffolding poles should be claimed for the benefit of the estate and not be treated as being exempt. The exception to this would be where the continuation of the hire side of the business would produce a greater return to creditors than the value of the poles, in which consideration should be given to allowing the bankrupt to retain the scaffolding poles for the benefit of the estate. Where the bankrupt possesses a large amount of scaffolding poles, it may be possible to claim some for the benefit of the estate, and leave the bankrupt with a smaller quantity to use in his/her business.


30.33 Where business is one of hire – practical examples (amended May 2010)

Where the business is solely one of hire, such as car hire, then it is unlikely that the items for hire will be used ‘personally’ by the bankrupt and so would not be considered exempt property. It may be appropriate to allow a certain number of vehicles provided they can either be used personally (e.g. a chauffer service), or where the benefit to the estate would be greater than that of realising the vehicles. The court has previously offered a view that the exemption does not apply to “valuable or extensive plant, however necessary it may be to the conduct of the debtor’s business” [note 3]. There is no recent case law on hire equipment and the official receiver will need to use his/her discretion in deciding whether to allow the bankrupt to retain items for hire purposes.


30.34 Consideration of ability to make IPA/IPO payments

Where exempt property is allowed that could arguably be considered of excess value, for the purposes of the bankrupt to continue to trade by keeping the assets, the official receiver, as trustee, should be looking to obtain an income payments agreement/income payments order (IPA/IPO). Such course of action makes the exemption of the assets justifiable to creditors.

In one case dealt with by an official receiver, a dentist was allowed to retain expensive dental equipment above and beyond that was necessary for him to continue trading as a dentist. He was allowed to retain the equipment as his earnings were of a level that meant a considerable IPA could be paid for the benefit of the estate as a consequence of the use of the equipment. The value of the IPA over the 3 year period was far greater to the estate than would have been achieved by the sale of the equipment.


30.35 ‘Other items of equipment’

The phrase ‘other items of equipment’ does not include stock or the insolvent’s trading premises [note 1]. The fact that stock and trading premises form part of the estate may mean that the bankrupt cannot continue in business, in which case, tools, books, vehicles and other items of equipment which would have been exempt property had the bankrupt continued trading, will instead fall to be dealt with as part of the estate. When a full assessment of the situation has been conducted, notice should be given to the bankrupt either rejecting [note 4, 5] or accepting [note 4] each claim for exempt property by the trustee.


30.36 ‘Other items of equipment’ – practical examples (amended May 2010)

Temporary but static structures such as a static snack bar in a lay-by could be considered to be trading premises and therefore would be treated as property that is not exempt, whereas a mobile vehicle such as an ice cream van could be claimed as exempt. This is because a mobile vehicle would fall into the category of motor vehicle which is necessary for his/her trading rather than being treated as a premises.

Technical Section has received legal advice that fixtures and fittings such as a baker's oven could be considered to be exempt property, although arguments could be raised to support a contrary view. The official receiver should consider the individual facts of each case when looking at items of fixtures and fittings.


30.37 ‘In his employment, business or vocation’

The words ‘in his employment, business or vocation’ are best interpreted to mean that use of the item is necessary in connection with the bankrupt’s employment, business, etc, as opposed to being necessary in the course of that employment or business. If therefore a bankrupt needs a vehicle in order to travel to and from work, because of a lack of alternative transport, it would be necessary for use in their employment or business even if they did not use the vehicle once they had arrived at their place of work. It should be noted that ‘employment, business or vocation’ need not mean the bankrupt’s only form of income generation.


30.38 Official receiver’s discretion in exempting items needed for a second or not for profit trade/profession (amended May 2010)

When deciding whether to accept a claim that items are necessary with regard to a bankrupt’s ’employment, business or vocation’, it may be that the ‘business or vocation’ is not the only source of income, or indeed may not generate an income at all (for example, a carer, see paragraphs 30.132 to 30.134). If that is the case, then only assets that are necessary and are not of excess value should be permitted. There should be no discretion to allow the retention of excess value items, as this will not allow a greater return to the estate as no further income will be generated (see paragraph 30.34). If a bankrupt is running several businesses and makes a claim to several different assets as exempt, the official receiver should use his/her discretion when deciding whether to allow only assets from the business that generates an income as exempt. Whether a business makes a profit is not the only factor in deciding whether an asset is exempt, but exempt items of excess value should not be permitted to be retained when the business in not profitable.


30.39 Bankrupt currently unemployed

An asset may be an exempt asset even though the bankrupt is not in employment at the date of the bankruptcy order if, without the asset, the prospect of them obtaining employment would be substantially reduced. See paragraphs 30.129 to 30.130 for details of when a bankrupt for use in his/her employment can claim a vehicle as exempt property, which includes certain circumstances when they are not currently working. The definition of "employment, business or vocation" has been widened following recent case law to include debtors who are informal, full-time, carers of a disabled friend or relative who would use the vehicle in connection with that role. See paragraph 30.132 for more details.


30.40 Motor vehicle claimed necessary for domestic or mobility purposes

A bankrupt may inform the official receiver that he/she suffers from a disability and that his/her motor vehicle is necessary for mobility or that the vehicle is necessary for domestic use (e.g. to take children to school). Reference should be made to paragraph 30.135 in these cases.


30.41 Trading - employment, business or vocation

In the case of a creditor’s petition, the bankrupt will have provided details of any trading activity in the questionnaire [note 6] at questions 21.6 to 21.16, and employment details are provided in questions 21.1 to 21.4. In the case of a debtor’s petition, the bankrupt will have provided details of any trading activity in the statement of affairs [note 7] at questions 2.1 to 2.12 and employment details are provided in questions 6.1 to 6.5. If the bankrupt's business has ceased trading it should be ascertained whether it has permanently ceased (because of serious illness or injury for example) or if the bankrupt is simply without work at present. If trading has ceased permanently, and the bankrupt does not intend to seek work in the same field, the assets that could have been considered exempt property, will not be necessary to the bankrupt and should be realised. The bankrupt may be in employment, but have to provide his/her own tools or equipment. In such circumstances, the assets should not be claimed unless a replacement is provided (see Part 3, paragraph 30.52). On the other hand, if the bankrupt is unemployed and unlikely to gain future employment, the assets, which could have been considered to be exempt property, will not be necessary to the bankrupt in his/her employment and should be realised by the trustee.


30.42 Viable business

If the bankrupt has claimed tools, books, vehicles or other items of equipment as exempt on the grounds that he/she intends to continue trading or wishes to re-commence trading, it should be established that the business is viable. See Chapter 62 for further information. As much information as possible should be collected and considered, the following being areas for consideration:

(a)   Was the business profitable and are the accounts available to verify this. Any unsupported assertions that trading was profitable should not be relied upon. Forecasts should be provided if the business is to resume trading.

(b)   How many in terms of numbers, and in monetary terms of the bankrupt's creditors relate to the business. Assessed crown debts should be included, as failure to deal with accounting obligations to the crown shows a lack of business expertise. Does the size and type of creditor indicate the business may not be successful?

(c)   Are the bankrupt's trading premises still available for use - the premises could be sold or repossessed, or the lease disclaimed. Landlords owed rent may not allow continued occupation of rented premises in which case, the business may not be viable.

(d)   Any stock or work in progress, unless of little or no value, will be realised by the trustee. Will this prevent continuation of trade?

(e)   Employees may have found alternative employment, or be unwilling to resume work if they are owed wages. Assets used only by employees are not considered to be exempt property (see paragraph 30.30 and Chapter 8, paragraph 8.67).

(f)     The bankrupt's reputation may have been damaged by the bankruptcy so that even suppliers and customers who have not suffered loss due to the bankruptcy may be wary about dealing with the bankrupt.

(g)   The bankrupt's prospects of obtaining other employment. In arriving at any decision concerning the removal of exempt property from the bankrupt which could effectively deprive him/her of his/her livelihood, the benefit to the estate of its realisation should be compared to the long term costs to the State by the provision of benefits.


30.43 Viable business – reaching a decision (amended May 2010)

The decision whether the bankrupt's business is viable should be arrived at by consultation between the examiner and the official receiver, and a note of the meeting should be placed on the file. Once the decision has been made to class property as exempt, it cannot be reversed, so situations where a business trades for 3 weeks then closes should be avoided by careful consideration of the facts prior to making a decision. As it is possible for the bankrupt to challenge the decision in court (see paragraph 30.56), the decision should not be taken lightly, each case should be considered on its merits. The bankrupt should be made aware that the official receiver is not condoning his/her continued trading, or providing any form of official approval for the business. The official receiver's role is purely to consider the viability of the business with a view to considering whether or not property may be claimed as exempt property, not to lend an air of respectability to the bankrupt's business.


30.44 Items subject to hire purchase and conditional sale agreements (amended May 2010)

A bankrupt’s rights under a hire purchase or conditional sale agreement are capable of forming part of the estate and the exempt property provisions apply to items acquired by them under such agreements. In all cases the official receiver should inform the owner of the item of the making of the bankruptcy order and state whether a claim that the item is exempt property has been made (and, where the official receiver is trustee, whether that claim has been accepted). If the owner of the item chooses to exercise a right under the agreement to repossess it, any surplus arising can be claimed by the trustee as after-acquired property [note 8] (see Chapter 31.8 on after acquired property). Where, however, the reason for treating the item as exempt still exists (for example, if the bankrupt still needs a vehicle in connection with his 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).

If the item repossessed is important in the bankrupt’s work, it may be necessary for the official receiver to reconsider whether other items claimed by the bankrupt as exempt property should be seized for the estate.  Conversely it may also be possible that if an item is repossessed, other items previously claimed by the trustee could then be considered exempt (for example where the bankrupt possesses two vehicles, one being on hire purchase).




[Back to Part 1 – Exempt property generally]  [On to Part 3 – Claim by trustee of items of excess value and items claimed by bankrupt not considered to be exempt]