The effect of bankruptcy on the debtor

The effect of bankruptcy on the debtor

Contents

Responsibilities

Some of the responsibilities of the debtor include the following:

  • The debtor must provide all the information the Trustee in Bankruptcy (TIB) requires about their own affairs, attend on the trustee at such times and do whatever else the TIB may require for carrying out their functions.
  • The debtor must within 21 days of becoming aware of it, disclose to the TIB, information of any property acquired or any increase in income received after the date of the bankruptcy order.
  • The debtor must, at the request of the Official Receiver (OR), give them the accounts relating to the bankrupt's affairs by the date they specify. The OR will set out the nature of the accounts needed and the period that those accounts should cover.
  • If the OR delivers a notice to the bankrupt requiring the bankrupt to supply a statement of affairs, the bankrupt must do so within 21 days of receiving the notice, unless the OR has allowed more time to do this. Each page of the statement of affairs must be signed and dated. It must also be verified by a statement of truth. The statement of affairs must include certain information prescribed by law, for example:
    • Details identifying the bankrupt and the bankruptcy order
    • Details of the bankrupt's secured and unsecured creditors
    • A list of all the bankrupt's assets and their value

Restrictions

Some of the restrictions on the debtor include the following:

  • The debtor can't during bankruptcy or while a bankruptcy restrictions order is in place, get credit (and this includes buying goods under a hire-purchase or conditional sale agreement), for more than £500 without disclosing that they are an undischarged bankrupt.
  • The debtor can't, without the court's permission, act as a director of a company or be involved in the creation or management of a company while being an undischarged bankrupt.
  • The undischarged bankrupt can't act as trustee of a charity (unless given permission under the Company Directors Disqualification Act) or as a trustee of a pension trust.
  • While an undischarged bankrupt the debtor can't trade under a new name to the one they became bankrupt in unless they make all customers and suppliers aware of the bankruptcy.
  • The debtor can't work as a solicitor without permission from the Solicitors Regulation Authority or as an insolvency practitioner while being subject to bankruptcy restrictions.
  • The debtor can't be appointed as an attorney in a lasting power of attorney relating to the donor's property and financial affairs.

Bankruptcy restrictions order and bankruptcy restrictions undertaking

If the OR believes a debtor has been dishonest or is to blame for the bankruptcy debts the court can make a bankruptcy restrictions order (BRO) against the debtor. This application would be made by the Secretary of State or the Official Receiver (OR) acting at the direction of the Secretary of State. The Secretary of State or OR may apply for a BRO at any time within a year of the bankruptcy order, but require the court's permission to make an application after that time.

The BRO effectively extends the period that the debtor will be subject to the above obligations and restrictions and can add further restrictions.

Some of the actions of the debtor that could result in a BRO application are:

  • The debtor gives away assets or sells them for less than their true value
  • The debtor pays some creditors in preference to others
  • The debtor making excessive pension contributions;
  • The debtor doesn't co-operate with the OR or other TIB
  • The debtor behaves in a fraudulent manner
  • You trade before or during your bankruptcy while knowing you can't pay your debts

The BRO can continue for up to 15 years but not less than 2 years, as determined by the court. The BRO is not affected by the discharge of the debtor from bankruptcy. The debtor could agree to a bankruptcy restrictions undertaking (BRU), which has the same effect as a BRO, but avoids the need for a court application.