Under the current law, at the date of sequestration the debtor's estate vests in the trustee. The debtor will in due course obtain his discharge but there has been no question of any assets reverting back to the debtor. The bill proposes certain amendments to the current position, which will have a material impact on the approach taken to asset realisation in any bankruptcy case.

The Family Home

In many bankruptcies the debtor's interest in his home can be one of the most valuable assets in the sequestration. In practice, however, it can be one of the most difficult assets to realise and negotiations for the sale of the debtor's home are often delayed by the debtor and his family, for understandable reasons. While best practice would require all assets to be realised as quickly as is practicably possible, until now the trustee has been able to take comfort from the fact that any delay in selling or agreeing terms for transfer of title have not been prejudicial to the interests of the creditors. The increase in property prices seen in almost every area of Scotland in recent years has often offset any prejudice to creditors.

The changes proposed by the bill introduce for the first time the notion that assets can revest in a debtor. The bill provides that unless the trustee takes prescribed steps to deal with the family home within a period of 3 years from the date of sequestration, the asset will cease to form part of the debtor's estate. It is therefore important that practitioners review their procedures and manuals to ensure that adequate steps are taken to deal with the family home and to ensure that this is realised for the benefit of creditors, where it is appropriate to do so.

The bill proposes that revesting in the debtor will not occur if the trustee has taken certain action, including :

  • recording a Notice of Title
  • concluding missives for the sale of the property
  • commencing court action
  • renewing the abbreviate.

The bill does however include provisions to protect the estate in cases where the debtor fails to disclose his interest in the property. In that case the period of three years will run from the date the trustee became aware of the property.

The bill also allows a trustee to abandon an interest in a heritable property by giving written notice. If notice is given by the trustee it is proposed that the notice is treated as sufficient evidence that the debtor is free to deal with the property.

Legacies/Life Policies

The bill also proposes new rules affecting certain assets where the debtor has an entitlement but he will not be vest in the asset until a later event. For example, a debtor may be named as a beneficiary under a will but will not be entitled to receive the legacy until the death of the individual. Another example would be life policies taken out by spouses in joint names. The policy may provide for a pay out in the event of the death or critical illness of one of the parties. Until now the debtor's interest formed part of the estate and remained part of the estate ,whether or not the debtor was discharged.

The bill proposes that on discharge these non-vested interests will revest in the debtor.

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