Far from being an ‘easy way out’ of debt, bankruptcy comes with far-reaching restrictions that are imposed on your financial and working life.
For starters, your bank accounts are frozen and your assets controlled by the Official Receiver (or Trustee if one is appointed). However, you are allowed to keep vital assets, such as those needed for work, and everyday household items. On top of these financial restrictions, you are also prohibited from becoming a company director, taking out loans over £500, running a company or using a different name to manage a company.
Unless cancelled or annulled, your bankruptcy order usually lasts 12 months during which time you must adhere to the restrictions mentioned above. Once the order comes into force, details of your bankruptcy are added to the Individual Insolvency Register – a publicly available list run by the Insolvency Service. This consists of the names of people who have been declared bankrupt within England and Wales. The Official Receiver will also publish your bankruptcy in the London Gazette.
The effect of bankruptcy on your credit score
Bankruptcy has serious financial implications and will impact your credit score. Your bankruptcy remains on your credit file for a minimum of six years, making it difficult for you to obtain finance. Also, you’ll have to let lenders know about your bankruptcy if you want to borrow more than £500. Plus, even when cleared from your credit file, lenders can still ask whether you’ve ever been bankrupt.
Will there be restrictions on employment?
Yes. For example, if you’re a Company Director, or acting as one, you’ll have to give up your position for the duration of your bankruptcy. This is because it is illegal to act as a Company Director, create, manage or promote a company, without the court’s permission during the bankruptcy period. In fact, most accredited institutions/ professions will prevent you from working.
However, it is possible for you to start trading again under a new name. But, if you do, you are obligated to tell everyone you do business with the name under which you were made bankrupt. Other restrictions include working as an Insolvency Practitioner or in any other authorised debt specialist job role. If you want further clarification about what you can or can’t do, feel free to give us a call, and we’ll talk you through your options.
The full term for bankruptcy is usually 12 months. However, in certain circumstances, your bankruptcy order can be extended if the Official Receiver believes you have not been compliant with your restrictions, or you have behaved recklessly or dishonestly before or after the issuing of your bankruptcy order.
If this happens, the Official Receiver can impose additional restrictions on you by applying to the court for a Bankruptcy Restrictions Order (BRO). The effect of which is to extend the restriction period from anything between two and 15 years. The actual period is decided on by the courts and is dependent on how seriously they judge your non-compliance. Reasons for the Bankruptcy Restrictions Order can be anything from failing to cooperate with the Official Receiver, to serious fraud or negligence.
What happens after a bankruptcy restrictions order has been made?
Once the BRO has been issued, you’re sent a copy. What happens next is up to you. You can either accept the decision and comply with the order, or reject it. Let’s take a look at what happens if you decide to reject the allegations and choose not to conform to the order. Non-compliance means you will be required to attend court, which means paying for a solicitor and incurring court fees, adding further costs to your bankruptcy. However, if you agree with the Official Receiver and comply with the conditions of the BRO, you will be allowed to enter a Bankruptcy Restrictions Undertaking (BRU). This has the same legal effect as a BRO but without the requirement to attend court. As a result, you won’t incur any additional costs.