Use it or lose it – when a trustee becomes aware of a bankrupt's interest
A recent decision helpfully clarified what it means for a bankrupt to inform their trustee in bankruptcy of an interest in a property subject to section 283A of the Insolvency Act 1986 (the so called "use it or lose it" provision), or how that trustee otherwise becomes aware of such an interest.
Section 283A concerns an interest in a property which is the home of the bankrupt, the bankrupt's spouse or civil partner, or a former spouse or civil partner of the bankrupt, at the date of the bankruptcy order. A trustee has three years to realise that interest, failing which it will cease to be part of the bankruptcy estate, and re-vest automatically in the bankrupt.
Section 283A(5) provides that, if the bankrupt does not inform the trustee of his interest in a property before the end of a three month period beginning with the date of the bankruptcy, the three year "use it or lose it" period does not begin with the date of the bankruptcy, but begins with the date on which the trustee becomes aware of the bankrupt's interest.
In Re Khilji  EWHC 298 (Ch), the Court was required to consider what it means for a bankrupt to "inform" their trustee, and for a trustee to otherwise "become aware" of that interest.
The facts of this matter concerned a deceased estate, in which the bankrupt was the spouse of the intestate deceased. Her rights under the unadministered intestate estate were agreed by all to be included in the bankruptcy estate. The bankrupt alleged that she had informed the trustee by her statement to the Official Receiver, from which the trustee should have appreciated that the bankrupt had an interest of some kind in a property registered in the sole name of the deceased, in light of her being the deceased's spouse, his intestate estate, and from the reference to her having made contributions to the mortgage, although she also said she did not think she had ever been a joint owner. The trustee disagreed about the quality of knowledge that such statements provided, arguing that only actual knowledge of an actual interest was sufficient, while assertions of claims that the bankrupt had an interest was insufficient.
Deputy ICC Judge Curl KC found in favour of the trustee, finding that the bankrupt's statement that she did not think she was ever a joint owner of the property gave no reason on the facts then known to them for the trustee or the OR to do anything other than take what the bankrupt told them at face value. He also found that making contributions to the mortgage are not an interest in a property within the meaning of s283A, and therefore this reference neither informed the OR or trustee, nor caused them to become aware of an interest within the meaning of s283A.
This is a helpful decision to office holders regarding the quality of information required to start the clock running on the 'use it or lose it' period of time, but careful review of the position and stopping the clock will remain a priority in bankruptcy cases.