Civil Litigation Solicitors

Personal insolvency significantly affects homeownership and property interests. Introduced in the Insolvency Act 1986, it outlines that, barring few exceptions, an insolvent individual's properties, including their residence, become part of the bankruptcy estate. This includes properties held under trusts. Recent data from the Insolvency Service indicates an uptick in insolvency rates, underscoring the growing relevance of understanding these legal frameworks for affected individuals.

Duncan Lewis' expert insolvency solicitors offer comprehensive legal advice for individuals, LLPs, partnerships, and sole traders facing insolvency under the Insolvency Act 1986. Specializing in insolvency proceedings, they guide clients through the complex legal landscape, including court declarations of bankruptcy and company wind-ups. With the capability to assist at any stage of insolvency, Duncan Lewis advises on managing debts, protecting assets, and navigating insolvency petitions effectively. For tailored legal solutions in insolvency and debt management, Duncan Lewis provides crucial support to safeguard your financial future.

The main formal personal insolvency procedures in England and Wales are bankruptcy and individual voluntary arrangements (IVAs) and as Insolvency practitioners, bankruptcy and IVA’s are the most common form of personal insolvency procedures that you will be dealing with.  But what happens to your property during bankruptcy proceedings?

Possession claims: Bankruptcy only

In personal insolvency cases where the bankrupt owns properties, those properties including the bankrupt’s home will, subject to some exceptions, form part of the bankruptcy estate and  also includes beneficial interests in property held under trusts.

Most often than not, the bankrupt's home will be the main asset and sometime the only realisable asset in the bankruptcy estate. Where that property falls within the scope of IA 1986, s 283A, the insolvency practitioner will have to take certain prescribed steps before the third anniversary of the date of the bankruptcy order, otherwise their interest will automatically re-vest in the bankrupt.

The reforms introduced by the Enterprise Act 2002 included the insertion of a new section 283A into the Insolvency Act 1986 that essentially gives the bankrupt's trustee in bankruptcy (trustee) three years to take the necessary steps to realise or secure the bankrupt's interest in the bankrupt's home failing which that interest will cease to be part of the bankruptcy estate and will automatically re-vest in the bankrupt.

When does the three year ‘use or lose it’ period start?

Clear guidance was given in March of this year by  Deputy ICC Judge Curl KC in the case of  Re Scherzade Khilji (in bankruptcy); Mehers v Khilji and another [2023] EWHC 298 (Ch).

At para 48 of the judgment, the Judge stated, “‘it is likely that if a bankrupt does not tell their trustee in clear terms that they consider themselves to have an interest in a property falling within s 283A(1) then the court is likely to be slow to find that the trustee has nonetheless been informed or has become aware of such an interest by means of a process of inference from equivocal facts’

The court clarified the requirement for the trustee's knowledge of a beneficial interest under IA 1986, s 283A, emphasising the need for clear communication from the bankrupt and rejecting the notion that inferred knowledge suffices in such cases.

Issues to be considered before an application for possession is made should include the following:

• where a property is solely-owned by the bankrupt, whether any other person has a beneficial interest in it (including where the bankrupt holds the property on a bare trust and has no financial or beneficial interest in the property)


• where a property is jointly-owned, whether it is held in equal beneficial shares or—if not—what beneficial share vests in the trustee?


• whether any co-owner has a claim for equitable accounting and/or the trustee has a claim for occupation rent;


• whether the co-owning spouse or civil partner has a right to equity of exoneration;


• the rights of any occupiers;


• whether any pre-bankruptcy transactions affecting, or dispositions of, property—including any pursuant to a property adjustment order made in family law proceedings—can be challenged.

What if the bankrupt is a residential tenant?

Most residential tenancies are regulated under the Housing Acts or Rent Acts and will often prohibit assignment, and consequently most residential tenancies will be excluded from the bankruptcy estate. However, the tenancies may still form part of the bankrupt’s estate if the trustee serves notice to that effect under section 308A of the Insolvency Act.

What is the correct procedure:

A trustee in bankruptcy may make an application under section 335A and 363 of the Insolvency Act 1986 (and associated provisions in the Trustees of Land and Appointment of Trustees Act 1996) for the possession and sale of a bankrupt's property. Where the property falls within sec. 283A of the Insolvency Act 1986 (the "use it or lose it" rule) that an application should be made within three years of bankruptcy, or else the trustee in bankruptcy's interest in the property will return to the bankrupt.

It is important that the correct procedure is following when making an application for possession and sale of a bankrupt’s property.  It is not uncommon to see applications being made using the Part 8 claim procedure. The application should be made under Rule 1.35 of the Insolvency (England and Wales) Rules 2016.

Duncan Lewis Solicitors

Duncan Lewis solicitors handle most areas of law – and have in house experts able to advice on any litigation matter, as well as being able to call on the expertise of leading barristers and expert witnesses. Our insolvency solicitors are able to advise individuals, LLPs, partnerships and sole traders on insolvency proceedings under the Insolvency Act 1986. Debt, bankruptcy and insolvency can affect future employment, credit and the ability to trade – call Duncan Lewis Insolvency Solicitors on 0333 772 0409 for expert legal advice on debt management and insolvency proceedings.

About the Author

Anthony Okumah is a Solicitor and Director in the Litigation department at Duncan Lewis Solicitors. He specialises in Dispute Resolution and has extensive experience in civil and commercial litigation, demonstrated through his esteemed ranking in both the Legal 500 and the Thomson Reuters Super Lawyers Directory as a Rising Star in litigation for the past 3 years. For advice or assistance on a civil litigation matter, contact Anthony at AnthonyO@duncanlewis.com, or via telephone at 02031141227.