The Family Home In Sequestration Cases - Protecting The Asset

Section 39A of the Bankruptcy (Scotland) Act 1985 came into effect with the various BAD Act changes on 1 April 2008. However it is only now that its implications are felt as the three year anniversary of those changes comes around.

Section 39A applies to all sequestrations granted on or after 1 April 2008. It provides that where heritable property is owned by a debtor at the date of sequestration, and where that property is a 'family home' as defined by section 40, the property will cease to form part of sequestrated estate three years after the date of sequestration. At that time the property will reinvest in the debtor. Therefore 1 April 2011 was the first date on which such properties will have reinvested in debtors.

However, the property will not reinvest in the debtor if the trustee has taken one of a number of steps:

the trustee disposes or otherwise realises the right or interest in the property; the trustee concludes missives for sale of the right or interest; the trustee sends a memorandum to the keeper of the register of inhibitions under section 14(4); the trustee registers a notice of title to the property; the trustee commences proceedings (ie lodges a writ or summons at the sheriff court) to obtain section 40 consent and/or a division and sale action and / or an action for vacant possession; the trustee and debtor enter into an agreement that the debtor shall incur a specified liability to his estate in exchange for which the heritable property will cease to form part of the sequestrated estate. Unless one of these steps has been taken, the property is reinvested in the debtor three years after the date of sequestration – without any need for a disposition, assignation or other transfer.

This new provision forces trustees to make a positive decision on how to deal with a family home within this three year window. Failure to act at all will result in the property reinvesting in the debtor which could potentially lead to complaints or even claims by disgruntled creditors against any trustees who have simply let the three year period slip by.

Extensions to the three year rule

There is an exception to the rule that the three year period commences at the date of sequestration and that is if the debtor conceals the existence of the heritage from the trustee and the trustee does not discover the property until at least three months after the date of sequestration.

Further, the three year period can be extended by making an...