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Bankruptcy: debtor's property


There is some difficulty in deciding what property is available to creditors in a bankruptcy. Certain property is not available - this ineludes trust property where the bankrupt is a trustee, tools of trade, clothing, etc. for debtor and wife up to £20, certain personal rights of action, property settled on protective trusts, and goods subject to a lien. State benefits and certain property are available only where the court orders them to be so. These are: (1) Army, Navy, Air Force and Civil Service pay; (2) thc salary or income of the bankrupt (the court will normally allow the debtor to keep enough of his salary to maintain himself, his wife and his family); (3) property situaated abroad, where the law of the foreign untry does not allow the trustee to take possession.

Apart from these three categories all property in the possession of the debtor at the commencement of thc bankruptcy will be available to creditors. The trustee's title relates back to the commencement of the bankruptcy - this is known as the doctrine of relation back. The bankruptcy commences with the first act of bankruptcy within three months of the presentation of the petition. To avoid the hardships that could be caused by the application of the doctrine of relation back, certain transactions are protected. Which types of transaction are protected is normally just a matter of common sense: they include payments to creditors, contracts etc., by the bankrupt for valuable consideration. The last only applies where the transaction took place before the receiving order and the other party had no notice of an available act of bankruptcy. This is something of an oversimplification and the reader is advised to consult the Bankruptcy Act 1914. The purpose is to protect innocent transactions in the normal course of business.

Property acquired by the bankrupt after adjudication vests in the trustee. Property p y consent of thc true owner may also be vested in the trustees for the benefit of creditors where the true owner has allowed the debtor to give the impression of ownership. The property must have been acquired for the purposes of trade or business. The property vests in the trustee by virtue of what is known as the order and disposition Clause of the Bankruptcy Act 1914. It applies only to goods and not to debts. The trustee may also obtain property by avoiding fraudulent preferences, fraudulent conveyances and certain voluntary settlements. The trustee is given protection where without negligence he seizes and disposes of property that does not really belong to thc debtor.


Reference: The Penguin Business Dictionary, 3rd edt.