Realising the Debtor's Interest in the Family Home

Question 1

Family Law Act 1996, s.30

Answer 1

Home rights:

• One spouse is entitled to occupy a dwelling house by virtue of a beneficial interest or right of occupation where the other spouse/civil partner is not so entitled.
• If in occupation, has a right not to be evicted or excluded from the dwelling house without leave of the court; if not in occupation a right with leave of the court so give to enter into and occupy the dwelling-house.
• If entitled to occupy, the spouse/civil partner must have made payment or tender or other things done in satisfaction of rent/mortgage payments/other outgoings effecting the dwelling-house

Question 2

Trusts of Land Act 1996, s.14

Answer 2

Where home is co-owned application for sale subject to powers of the court:
Declaring the nature or extent of a person’s interest in property as the court thinks fit

Question 3

Family Law Act 1996, s.33

Answer 3

Where spouse or civil partner has home rights under FLA 1996, s.30 application to terminate those rights subject to powers of the court:
The court should have regard to the housing needs and housing resources of each of the parties and of any relevant child, the financial resources of each of the parties, the likely effect of an order on the health/safety/well-being of the parties and any relevant child, the conduct of the parties in relation to each other and otherwise. If it appears that the applicant or the relevant child is likely to suffer significant harm attributable to conduct of the respondent if an order is made, the court shall make the order unless it appears that the respondent or any relevant child is likely to suffer significant harm if the order is made and the harm likely to be suffered is as great as/greater than the harm attributable to conduct of the respondent.

Question 4

Insolvency Act 1986, ss.335A(1), 336(2)

Answer 4

Claims under FLA and TLA to be made to the bankruptcy court.

Question 5

Insolvency Act 1986, ss.335A(2), 336(4)

Answer 5

Factors court is to consider when making an order:

• Interests of the bankrupt’s debtors
• If dwelling house
• Conduct of other in contributing to bankruptcy
• Needs/financial resources of other
• Needs of any children
• Circumstances of the case other than needs of bankrupt

Question 6

Insolvency Act 1986, ss.335A(3), 336(5)

Answer 6

If trustee does not apply to court until at least one year after property vested in him then “the court shall assume, unless the circumstances of the case are exceptional, that the interests of the creditors outweigh all other considerations”

Question 7

Insolvency Act 1986, ss.337(1)-(6)

Answer 7

Whether or not a spouse or civil partner has home rights if there are children below 18 who were living with the bankrupt at the date of petition and bankruptcy, as regards a dwelling house which bankrupt entitled to occupy by virtue of a beneficial interest and which the bankrupt and the children had at some time occupied together. Bankrupt is give a right of occupation binding on trustee in bankruptcy and any application to terminate that right must be to bankruptcy court.
In exercising this discretion court takes similar factors into account and similar presumption in favour of creditors after one year.

Question 8

Insolvency Act 1986, ss.335A(1)-(3)

Answer 8

(1) Where land other than a home is co-owned by bankrupt and another, the trustee’s application for sale under TLA must be to the bankruptcy court
(2) The court has regard to the interests of the bankrupt’s creditors and all the circumstances of the case other than the needs to the bankrupt and after a year presumption in favour of creditors applies

Question 9

Re Citro [1991] Ch 142 (CA)

Answer 9

Case: Facts concerned pre 1986 bankruptcies which today would come under s.335A

Decision: Result under new law would be the same (per Nourse J)

Quote: “The broad effect of these authorities can be summarised as follows. Where a spouse who has a beneficial interest in the matrimonial house has become bankrupt under debts which cannot be paid without the realisation of that interest, the voice of the creditors will usually prevail over the voice of the other spouse and sale of the property ordered within a short period. The voice of the other spouse will only prevail in exceptional circumstances. No distinction is to be made between a case where the property is still being enjoyed as the matrimonial home and one where it is not.
What are the exceptional circumstances? As the cases show, it is not uncommon for a wife with young children to be faced with eviction in circumstances where the realisation of her beneficial interest will not produce enough to buy a comparable home in the same neighbourhood, or indeed elsewhere; and if she has to move elsewhere, there may be problems over schooling and so forth. Such circumstances, while engendering a natural sympathy in all who hear of them, cannot be described as exceptional. They are the melancholy of consequences of debt and improvidence with which every civilised society has been familiar.”

Question 10

Claughton v Charalambous [1991] 1 FLR 740

Answer 10

E.g. of exceptional circumstances:

Bankrupt sole owner; permanent disability of bankrupt’s 60 y/o spouse’ sale postponed until death of spouse

Question 11

Re Bremner [1999] 1 FLR 192

Answer 11

E.g. of exceptional circumstances:
Bankrupt owned 50%; terminally ill 79 y/o bankrupt being cared for by 74 y/o spouse; sale postponed until 3 months after death of bankrupt

Question 12

Re Haghighat [2009] BPIR 268

Answer 12

E.g. of exceptional circumstances:
Bankrupt sole owner; spouse with home rights and 3 children’ severely disabled child needing constant care by mother; sale postponed 3 years to allow rehousing of mother and child by local authority

Question 13

Avis v Turner [2008] Ch 218 (CA)

Answer 13

Case: Consent order in divorce proceedings provided for division of net proceeds of sale of home but with sale postponed until certain events occurred and until then Mrs A had exclusive occupation; Mr A later bankrupt and trustee applied for sale even though none of the events had occurred

Decision: A property adjustment order is not absolute and is qualified by the rights of the other interested in the property ti apply to the court for under of sale under TLA

Rule: Parties cannot contract out of ss.335A-337

Question 14

TOLATA 1996, s.14-15

Answer 14

Until 1996 an identical approach to that in bankruptcy was taken if a judgment creditor having obtained a charging order against the debtor’s interest in a house sought to realise that interest by applying for order for sale and likewise if a mortgagee of the debtor’s interest sought an order for sale. But TOLATA 1996 s.15 introduced separate factors for the court to consider in bankruptcy.

(14) Applications for order
Trustee of land/person with property subject to trust may make an application for an order relating to interest/declaration of interest/removal of trustees etc.
(15) Matters relevant in determining applications:
- Intentions of the person or persons (if any) who created the trust
- The purposes for which the property subject to the trust is held
- The welfare of any minor who occupies or might reasonably be expected to occupy any land subject to the trust as his home
- The interest of any secured creditor of any beneficiary

Question 15

Zandfarid v BCCI SA [1996] 1 WLR 1420

Answer 15

TOLATA may lead to chargees or mortgagees to pursue bankruptcy as a route to realising the debtor’s interest, a practice sometimes disapproved of by the courts

Case: Bank petition to make debtor bankrupt offering to give up their security

Question 16

Re Ng [1997] BCC 507

Answer 16

TOLATA may lead to chargees or mortgagees to pursue bankruptcy as a route to realising the debtor’s interest, a practice sometimes disapproved of by the courts

Case: Building society funded trustee in bankruptcy of debtor to seek order for sale rather than do it itself as mortgagee

Question 17

Insolvency Act 1986, s.263A(1)(2)

Answer 17

If the trustee takes no action within three years of bankruptcy order in respect of the bankrupt’s interest in a dwelling house which, at the date of the bankruptcy, was the sole of principal residence of the bankrupt, bankrupt’s spouse or civil partner or a former spouse or civil partner of the bankrupt, it automatically re-vests in the bankrupt

Question 18

Insolvency Act 1986, s.263A(3)

Answer 18

Action by the trustee may be to realise the interest, apply for an order for sale or possession, apply for a charging order under s.131 or surrender the interest to the bankrupt on agreed terms

Question 19

Insolvency Act 1986, s.3131

Answer 19

A charging order will secure the trustee’s interest over the house, title to which will then re-vest in the bankrupt subject to the charge

Question 20

Lewis v Metropolitan Property Realisations Ltd [2010] Ch 148 (CA)

Answer 20

Does a trustee “realise” the debtor’s interest in a dwelling house under s.283(3)(a) by assigning it for £1 plus 25% of whatever the debtor’s interest realizes when the house is sold?

Case: Joint tenants of matronal home; under bankruptcy order bankrupt’s share vested in trustee in bankruptcy; day before 3 years of trustee purporting to assign interest to creditor for consideration of £1 and 25% of any eventual sale of the interest; the tenants thereafter sought a declaration that the first tenant’s former interest in the property had reverted in him at the end of the three=year period period beginning with the date of the bankruptcy and that the creditor had not interest

Decision: On a true construction the term “realises” in s.283A(3)(a) involved getting in the full cash consideration for a transaction and did no include a sale or an assignment for a future cash price, or a partially future price, at the stage before that case had been got in; and that therefore, because not all the cash to be obtained from the transaction between the trustees and the creditor had been got in within three years from the date of the bankruptcy, the transaction did not fall within s.283A(3)(a) and the credit had no interest in the property which had revert in the bankrupt pursuant to section s.283(2)(b)