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Top Policy topic #1079

Subject: "Bankruptcy and rent arrears" First topic | Last topic
johnrob
                              

benefit manager,, housing 21 housing association, selby
Member since
10th Jun 2005

Bankruptcy and rent arrears
Thu 09-Oct-08 08:05 AM

Hi,

Not sure if I posting this in the right discussion forum or not but am looking for a bit of advice. Ken/Shawn - if I have posted this in the wrong forum, please feel free to move to a more appropriate discussion forum

I am working with a client who currently has £3044 of rent arrears. He has been through the court system and was declared and discharged as bankrupt in April 2006.

Of the £3044 in rent arrears £1813 of these arrears accrued prior to April 2006.

Am I correct in assuming that the arrears that accrued prior to April 2006 cannot be recovered by the landlord and therefore have to be written off. I'm hoping this is the case and I can therefore reduce his arrears to £1231.

If it is the case that arrears that accrued prior to bankruptcy have to be written off, can anyone point me in the direction of any written legislation, guidance etc so I can quote this to the relevant housing manager.

He is now in receipt of housing benefit and I'm hopeful that if the arrears can be reduced I can make an arrangement with him to pay off the arrears, albeit at a nominal amount.

Any advice would be gratefully received

Many thanks

John

  

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Replies to this topic
RE: Bankruptcy and rent arrears, nevip, 08th Oct 2008, #1
RE: Bankruptcy and rent arrears, pipkin, 08th Oct 2008, #2
      RE: Bankruptcy and rent arrears, Andy Hamilton, 08th Oct 2008, #3
           RE: Bankruptcy and rent arrears, nevip, 09th Oct 2008, #5
                RE: Bankruptcy and rent arrears, johnrob, 09th Oct 2008, #6
                     RE: Bankruptcy and rent arrears, nevip, 09th Oct 2008, #7
                          RE: Bankruptcy and rent arrears, johnrob, 09th Oct 2008, #8
                               RE: Bankruptcy and rent arrears, Derek, 09th Oct 2008, #9
                                    RE: Bankruptcy and rent arrears, nevip, 10th Oct 2008, #10
                                         RE: Bankruptcy and rent arrears, johnny, 14th Oct 2008, #11
                                              RE: Bankruptcy and rent arrears, johnny, 14th Oct 2008, #12
                                                   RE: Bankruptcy and rent arrears, Derek, 14th Oct 2008, #13
                                                        RE: Bankruptcy and rent arrears, nevip, 14th Oct 2008, #14

nevip
                              

welfare rights adviser, sefton metropolitan borough council, liverpool.
Member since
22nd Jan 2004

RE: Bankruptcy and rent arrears
Wed 08-Oct-08 10:17 AM

Section 382(1) of The Insolvency Act 1986 is in the following terms:

(1) “Bankruptcy debt”, in relation to a bankrupt, means (subject to the next subsection) any of the following—
(a) any debt or liability to which he is subject at the commencement of the bankruptcy,

(b) any debt or liability to which he may become subject after the commencement of the bankruptcy (including after his discharge from bankruptcy) by reason of any obligation incurred before the commencement of the bankruptcy,

(c) any amount specified in pursuance of section 39(3)(c) of the Powers of Criminal Courts Act 1973 in any criminal bankruptcy order made against him before the commencement of the bankruptcy, and]

(d) any interest provable as mentioned in section 322(2) in Chapter IV of Part IX.

So once the bankruptcy order is discharged the bankrupt is also discharged from any outstanding bankruptcy debts.


  

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pipkin
                              

Debt Adviser, Southway Housing, Manchester
Member since
10th Mar 2008

RE: Bankruptcy and rent arrears
Wed 08-Oct-08 10:51 AM

There could be added confusion to htis as there seems to be a conflict between BR & Housing Law..

If the client had had possession action taken against him prior to the BR petition thent he landlord can continue to collect... However Im not sure if this is like the DWP - only whilst the cli is an undischarged BR or whether it means they can collect indefinately...

  

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Andy Hamilton
                              

Money Adviser, Leicester Money Advice, Leicester
Member since
16th May 2007

RE: Bankruptcy and rent arrears
Wed 08-Oct-08 03:40 PM

It's been a while since I read this so I can't remember the ins and outs but the following court of appeal decision goes through how a secured tenancy changes after possession and the affect on bankruptcy.

http://www.bailii.org/ew/cases/EWCA/Civ/2006/156.html

  

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nevip
                              

welfare rights adviser, sefton metropolitan borough council, liverpool.
Member since
22nd Jan 2004

RE: Bankruptcy and rent arrears
Thu 09-Oct-08 11:04 AM

That’s an interesting decision and it appears to have a more profound impact on housing law than insolvency law. The decision clearly states that the rent arrears are debts provable in the bankruptcy (paragraph 11). However, the decision makes it clear that payment of the arrears may be enforced under either The Housing Acts or The Insolvency Act.

The major plank of the appellant’s case appears to be that as the rent arrears was a bankruptcy debt then section 285(3) of The Insolvency Act 1986 precluded the enforcement of the possession order and that, therefore, (if I read the decision correctly) the rent arrears were thus not enforceable either. Both of those arguments were thrown out.

So does the question still remain: in the light of that decision, if the rent arrears is a bankruptcy debt are any arrears outstanding ‘wiped out’ after the discharge of the bankruptcy order?

  

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johnrob
                              

benefit manager,, housing 21 housing association, selby
Member since
10th Jun 2005

RE: Bankruptcy and rent arrears
Thu 09-Oct-08 01:30 PM

It is an interesting case that Andy has posted and I read the decision the same as you Paul.

The appellant argued that the arrears should not be recovered as they accrued prior to the bankruptcy.

I was under the impression that this was the case but as this argument was thrown out in this case, I'm no longer sure.

Obviously, the arrears that have built up since the client was declared bankrupt are recoverable by the the landlord but I'm now none the wiser as to how the arrears that accrued prior to being declared bankrupt will be deal with (or not as the case may be). I don't know if it makes any difference to this or not, but the landlord hasn't at any point tried to recover any of the arrears through the courts or by any other legal method, they have just been in discussions with the client to try to make a voluntary arrangement so it doesn't have to go to court.

If there is any way I am able to get a substantial portion of his arrears written off, it will make life easier for my client.

John

  

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nevip
                              

welfare rights adviser, sefton metropolitan borough council, liverpool.
Member since
22nd Jan 2004

RE: Bankruptcy and rent arrears
Thu 09-Oct-08 02:03 PM

Hi John

My view is, until someone with more knowledge than my paltry grasp of such matters tells me, that the rent arrears is a bankruptcy debt and any amount outstanding after the date of discharge of the bankruptcy order is not recoverable. Worth arguing is it not?

Regards
Paul

  

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johnrob
                              

benefit manager,, housing 21 housing association, selby
Member since
10th Jun 2005

RE: Bankruptcy and rent arrears
Thu 09-Oct-08 02:30 PM

Hi Paul,

You're absolutely right, it's always worth an argument! I'm in the process of putting the details of my clients case together and will then submit it to the housing services manager and request that they write off these arrears.

Thanks for your help.

Regards

John

  

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Derek
                              

CAB Adviser, Esher CAB
Member since
09th Mar 2004

RE: Bankruptcy and rent arrears
Thu 09-Oct-08 05:48 PM

My reading of the case is that it is all about an appeal to negate the effect of the possession order, rather than being about any liability for the pre-bankruptcy rent arrears. Or have I over-simplified it and got it all wrong?

So far as I am aware, the arrears should be written off when the bankrupt is discharged, but I do know that in practice this is not what tends to happen. The Official Receiver often turns a blind eye to the fact that the tenant is paying off the rent arrears while bankrupt - something which the judge in the case condoned and encouraged, but which actually breaches bankruptcy law - and the payments just continue after discharge.

However, as Paul said it's worth arguing about - best to raise it quite simply on the basis that this is the law under the bankruptcy without going into any other detail.

  

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nevip
                              

welfare rights adviser, sefton metropolitan borough council, liverpool.
Member since
22nd Jan 2004

RE: Bankruptcy and rent arrears
Fri 10-Oct-08 08:14 AM

My reading is exactly the same as yours Derek.

  

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johnny
                              

money adviser, keynote housing association, birmingham
Member since
23rd Jun 2005

RE: Bankruptcy and rent arrears
Tue 14-Oct-08 10:10 AM


the relevant case on this matter is Harlow district council vs Hall

Harlow District Council v Hall (CA)

Bankruptcy does not affect obligation to pay rent arrears to local authorities and social landlords

Damian Falkowski appeared for Harlow District Council successfully resisting this appeal. Mr Hall was a tenant of Harlow against whom an order for possession had been made for rent arrears. Enforcement of possession was postponed on payment of the current rent and an amount each week in respect of arrears. Shortly after the order for possession was made Mr Hal ml petitioned for his own bankruptcy. Mr Hall then argued that the maintenance of the order for possession amounted to a “remedy” against the property of the bankrupt within the meaning of s 285(3) of the Insolvency Act 1986 and that that was prohibited by the terms of s 285(3). The Court of Appeal rejected that submission.

The case is of importance to every local authority and all social landlords. Had Mr Hall’s argument succeeded, it would have meant that all rent arrears are “written off” on the making of a bankruptcy order.

  

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johnny
                              

money adviser, keynote housing association, birmingham
Member since
23rd Jun 2005

RE: Bankruptcy and rent arrears
Tue 14-Oct-08 02:23 PM

this from the technical manual

"31.7.31 Rent arrears

In a recent unreported Court of Appeal hearing, the Court of Appeal held that the right of a landlord to recover his/her property from a defaulting tenant, irrespective of whether the landlord does or does not require a court order to do so, is not affected by bankruptcy.

The Court of Appeal case concerned the situation where a possession order had been obtained against a tenant in respect of rent arrears by the relevant District Council. The possession order was then suspended when the tenant agreed to pay current rent plus an amount to discharge the arrears. Subsequently the tenant was declared bankrupt and the Court of Appeal did not dispute that rent arrears outstanding at the date of bankruptcy became a provable debt in the bankruptcy proceedings.

However, the Court of Appeal determined that the possession order was not a remedy against the property or person of the bankrupt and therefore was not restricted by the provisions of the Insolvency Act section 285 (3) (with reference to earlier cases of Ezekial v Orakpo <1977> QB 260 and Razzaq v Pala <1997> BPIR 726 ). The Court of Appeal made it clear that the local authority might have sought possession of the property both before and after the date of the bankruptcy order.

The consequence of this is, where a possession order is made in respect of rent arrears, the court may suspend that order on the condition that the rent arrears will be discharged over a period of time. Where the individual concerned is an undischarged bankrupt then it is anticipated that any amount ordered by the court to discharge the rent arrears would be taken in to consideration when assessing the individual's ability to make payments under an income payments agreement/order.



I checked it out with the Insolvency Service helpline and the guy said that, whether or not a landlord had a Court Order, the OR would not have a problem with a tenant paying a reasonable sum towards rent arrears in order to stay in the property, even though the rent arrears were provable in the bankruptcy.

Which only goes to show that, whatever the law reports say, it’s what happens on the ground that counts.

  

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Derek
                              

CAB Adviser, Esher CAB
Member since
09th Mar 2004

RE: Bankruptcy and rent arrears
Tue 14-Oct-08 03:05 PM

Johnny:

There is no doubt that the rent arrears are a debt provable in the bankruptcy. I believe there is also no doubt that, if a debtor makes any payment direct to a creditor while bankrupt (in respect of a debt which has been proved in the bankruptcy), he/she commits a bankruptcy offence; also that any unpaid sums of such debts are written off on discharge of the bankrupt. So one would expect these rules to apply to rent arrears. This is based on the legislation - not just on what law reports say.

However, the Court of Appeal decision has undoubtedly muddied the waters. My reading of it is that it was decided on the basis of Housing law rather than Bankruptcy law, and what it decided was that the possession order was not affected by the bankruptcy. It is that order the Court decided was not a remedy against the property or person of the bankrupt. Although the order is a consequence of the rent arrears, I do not think this is the same as saying that the arrears could continue to be collected after discharge - so far as I can see the judgement was silent on this point.

I agree that what is happening on the ground is that rent arrears are in effect being considered to be outside the bankruptcy. This does not, in my opinion, mean that what is happening is right. Perhaps someone sometime will be brave enough to take a case to Court after discharge so that a definite ruling can be made in accordance with bankruptcy law.

However, I'm sure someone with greater knowledge than I will put me right on all this!

  

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nevip
                              

welfare rights adviser, sefton metropolitan borough council, liverpool.
Member since
22nd Jan 2004

RE: Bankruptcy and rent arrears
Tue 14-Oct-08 03:42 PM

Derek's view is my view also.

  

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Top Policy topic #1079First topic | Last topic