A significant policy change in the way that the Official Receiver (OR) deals with a bankrupt’s interest in the family home is being rolled out. Hitherto, where there was little or no equity in the property, the OR was quite amenable to disposing of the bankrupt’s interest by accepting a nominal sum (often just £1) plus transaction costs (a few hundred pounds) from the bankrupt’s spouse or family or a friendly third party and so enabling the property to be re-vested in the bankrupt.
The policy change which came into effect in January 2011 means that the OR will no longer dispose of the bankrupt’s interest in this way, even when there is no equity in the property, although the discretion to do so is being retained. In general, the new policy means that the OR will wait for a period of two years and three months after the bankruptcy order is made before reviewing the case, unless an offer is made in the meantime which is in the interests of the creditors to accept. No longer will nominal offers be accepted as a general practice.
Market expectations are that property values have bottomed out or are about to do so and that they will begin to increase in the next year or so. Still, it seems a little harsh on any property owner who is unfortunate enough to become bankrupt, that the OR’s actions will have the effect of darkening any ray of light at the end of the bankruptcy tunnel by retaining the opportunity to cash in on any future increase in equity in the property.
The motivation for the policy change is not transparent but it does seem that the OR wants to make bankruptcy a less attractive insolvency solution than it has become over the last few years and that it will lead to a surge in the demand for Individual Voluntary Arrangements with a corresponding reduction in bankruptcies.