DISCHARGE FROM BANKRUPTCY

UNDERSTAND WHAT IT MEANS TO BE A 'DISCHARGED BANKRUPT'

The number of Individual Insolvencies in England & Wales continues to ascend with 10'465 registered in November 2022, an 11.4% increase against November 2021 and representing an 8.9% rise from November 2019's pre-pandemic figures. With 612 individual bankruptcy orders having been made in January 2023, a 21% increment in creditor applications from a year ago, this article will provide a brief introduction to what happens when a debtor when they are discharged from bankruptcy.

WHAT DOES IT MEAN TO BE DISCHARGED FROM BANKRUPTCY?

Bankruptcy is 1 of the 3 principal formal individual insolvency procedures in England & Wales. The other 2 being Individual Voluntary Arrangements (IVAs) and Debt Relief Orders (DROs). Bankruptcy, commences from the date the bankruptcy order is made and continues until the individual has been discharged pursuant at which point, the debtor becomes a 'discharged bankrupt'.

During bankruptcy, the bankrupt's estate is managed by the Trustee In Bankruptcy (TIB) whom may be the Official Receiver (OR) and whose duty is to divide and distribute the debtor's estate to the bankruptcy creditors in satisfaction of the bankrupt's debts. During this time, the bankrupt is subject to a variety of restrictions such as being prevented from acting as a company director or other officer and having to hand over bank and credit cards to the TIB. Once discharged, the majority of these restrictions come to an end. However, there are some lingering consequences and obligations.

AUTOMATIC DISCHARGE

Subject to the bankrupt’s conduct during their bankruptcy, a bankrupt should automatically be discharged from bankruptcy on the first anniversary of bankruptcy order.

The policy aims of an automatic discharge on the first anniversary were stated (when the Enterprise Act 2002 was brought into force to reduce the discharge period from 3 years to 1) as being to:

1. Remove the stigma of bankruptcy.

2. Give bankrupts the opportunity of prompt rehabilitation in relation to their financial affairs.

3. Encourage entrepreneurs to try again.

A bankrupt cannot be discharged before the 1st anniversary of the bankruptcy order. However, should there be sufficient ground, the bankrupt may consider applying to court for an annulment of the bankruptcy order.

ADVANTAGES TO BANKRUPTCY

Once discharged, the now discharged bankrupt can begin to carry on life and business without the majority of restrictions that applied during their bankruptcy. Specifically, the discharged bankrupt will once again be able to:

1. Act as a director of a limited liability company (unless the bankrupt is subject to a separate disqualification order).

2. Be involved in the management of a company (again, assuming there is no disqualification).

3. Obtain credit without disclosing their status (unless specifically asked to do so during the credit application or other legal processes).

4. Usually, be able to keep any assets acquired following their discharge (these will not constitute as part of the bankrupt's estate).

CONSEQUENCES OF BANKRUPTCY

However, discharge from bankruptcy does not mean that life will go back to normal as the discharged bankrupt will still need to contend or consider:

1. Payments: While a discharged bankrupt generally has no further liability for their bankruptcy debts and interest running on them, Income Payment Orders (IPO) or Income Payment Agreements (IPA) remain meaning that payments to creditors will continue for the duration of those orders (usually 36 months).

2. Assets: While assets obtained after the bankrupt has been discharged remain with them, any that have been seized under the bankruptcy that have not yet been dealt with remain under the control of the TIB or the OR. These can still be used to pay off the bankrupts debts, even after discharge and the bankrupt will not be able to take them back.

3. The Bankruptcy Estate: Should a charging order over the interest in the bankrupt's home or similar property have been put in place, this will continue for up to 3 years even after the bankrupt has been discharged. Then, providing the TIB has not sold the bankrupt’s property within 3 years of the bankruptcy order, it may be returned to bankrupt.

4. Certain Debts cannot be extinguished until paid. These are:

   1. Fraud: Any debt incurred as a result of fraud or breach of trust to which the bankrupt was a party.

   2. Fine: Any liability for a fine imposed as punishment for any offence, except a penalty imposed for an offence relating to HM Revenue and Customs if the Treasury consents to the discharge.

   3. Injury: Any debt which arises as a result of liability for personal injury in negligence, nuisance or breach of statutory, contractual or other duty.

   4. Family: A debt arising under any order made in family proceedings or under a child maintenance calculation, except as the court may direct.

   5. Student Loans: Those tenacious Student Loans.

   6. Criminal Confiscation: Any obligation under a criminal confiscation order.

5. Credit Rating: A discharged bankrupt’s bankruptcy will stay on their credit report for 6 years and will continue to affect their credit score for that period. Consequently they are unlikely to obtain credit even after discharged and getting or obtaining a mortgage for any new property will be near impossible for those 6 years. Further, lenders, employers and landlords may also seek clarification as to whether or not an individual has ever been made bankrupt even after it has been removed from their creditor report.

6. Public Records: Upon the making of a bankruptcy order, an entry is automatically entered into the Insolvency Register against the bankrupt. By extension, when discharged a further entry is made confirming that the bankrupt has been discharged and this remains on the register for 3 months from the date of discharge Thereafter, it is automatically deleted. By contrast, there is no such automatic deletion on the Land Register and the discharged bankrupt will need to make an application to remove this.

7. BROs & BRUs: Bankruptcy Restriction Orders (BROs) & Bankruptcy Restriction Undertakings (BRUs) are a way of dealing with bankrupts whom abuse the system and/or whose conduct has been "dishonest, reckless or otherwise culpable' which covers a wide variety of conduct. The function of BRUs & BROs are to extend the period of the bankruptcy restrictions for a minimum of 2 years up to a maximum of 15 from the date the BRO or BRU was made (as opposed to the date of bankruptcy order).

SUSPENDING THE AUTOMATIC DISCHARGE

Should the bankrupt have failed, or is failing, to comply with their obligations under then the OR or TIB may apply to court before the first anniversary of the bankruptcy order to suspend the bankrupt's automatic discharge for a fixed period until the fulfilment of a specified condition.

While there is an inevitable tension between the desirability of a bankrupt knowing how to obtain discharge and preventing uncooperative or dishonest bankrupts from frustrating their TIBs legitimate enquiries, exactly where the balance is struck will depend on the circumstances and people in this situation would benefit from taking independent legal advice.

Suspension is penal in nature. Consequently, the court must be satisfied that the bankrupt has failed or is failing to comply with their obligations (the threshold stage) before considering how it will exercise its discretion to make a suspension order (the discretion stage).

Suspending automatic discharge is a matter of discretion for the court. Accordingly, the court should consider whether it is in the public interest, bearing in mind the debtor's failure to comply with their statutory obligations, to keep the debtor subject to the restrictions that affect an undischarged bankrupt. Following the making of a suspension order, the court will order that the period of a year shall cease to run.

HOW WE CAN HELP

Unlike most law firms, our standard retainer includes a commitment to support clients past judgement and through enforcement. Our dedication to you does not cease with judgement but until you have received your court ordered damages/compensation in full and recovered with the costs of the litigation.

Prior to commencing any litigation, we undertake a detailed search of your opponents assets in order to ensure the cost of litigation never outweighs its benefits. Thereafter, we maintain a watchful vigil over these resources so you can be secure that you will receive your due judgment.

Gavin Renwick has successfully dealt with fraudulent debtors whom have supplied false information to county court bailiffs, High Court Enforcement Officers and/or made false representations in the Insolvency Courts in a bid to frustrate enforcement, hinder judgement and inflict further financial pressure on their creditors. In these cases often involving attempts to hide assets in faux-companies, by sham-divorces or fake addresses we have found it necessary to present a bankruptcy petition at court and place the debtor's assets under the stewardship of the courts to protect them.

We have successfully advised and appeared for creditors at bankruptcy hearings. Should you require any legal advice whether as a debtor or creditor then contact us for confidential legal advice.