The Insolvency Service which administers and investigates the affairs of bankrupt persons has issued two new guidelines summarising changes in policy which will make bankruptcy a much less attractive option for insolvent persons in the future.
Income Payments Agreements and Income Payments Orders
The first change relates to the payments the bankrupt makes to the Official Receiver under an Income Payments Agreement or under an Income Payments Order. The minimum amount that the Official Receiver seeks to claim under an Income Payments Agreement or an Income Payments Order is reduced to £20 per month and the bankrupt no longer retains any of the remaining surplus income once their reasonable household expenditure is accounted for.
The effect of this change is to increase the contributions that a bankrupt will be required to make to the Official Receiver. This change came into effect on 1st December 2010.
Bankrupt’s Interest in the Family Home
The second change relates to way in which the family home is dealt with. The Official Receiver, as trustee of the bankruptcy estate, will no longer dispose of a bankrupt’s interest in a family home until two years and three months after the bankruptcy order is made, except if an offer is received which is in the creditors’ interests to accept. At two years and three months a review will begin. In cases where the bankrupt’s interest in the property is valued at less than £1,000, steps will be taken to re-vest the property interest in the bankrupt.
Otherwise, if there is insufficient equity to attract an insolvency practitioner to act as the trustee of a bankruptcy estate, then enquiries will be made as to whether the bankrupt or a third party would be interested in purchasing the interest, assuming the property interest may be worth more than £1,000. If it is not possible to transfer the interest, and the interest is valued in excess of £1,000, the Official Receiver will consider applying for a charging order.
If there is sufficient interest in the property, and if the Official Receiver is not aware of any willing purchaser, a Secretary of State appointment of an IP trustee may also be sought.
The Official Receiver has the discretion to effect an early re-vesting of the property back to the bankrupt in specific circumstances.
The effect of this change is to increase the likelihood that the Official Receiver will be able to realise equity in a bankrupt’s family home for the benefit of creditors, since the time window for the Official Receiver to achieve this is effectively increased, there being also a longer period of time in which property values (and the bankrupt’s equity interest) may increase. This change came into effect on 1st January 2011.
The motivation for these policy changes is not transparent but it does seem that the Official Receiver wants to make bankruptcy a less attractive insolvency solution than it has become over the last few years. A further effect of both changes may be to stimulate a surge in the demand for Individual Voluntary Arrangements with a corresponding reduction in the demand for bankruptcies.