Bankruptcy is a legal process that places restrictions on individuals unable to pay their debts for 12 months, allowing them to seek relief from their debts and enjoy a fresh financial start.
However, if the person handling your bankruptcy proceedings (called the official receiver) believes you have engaged in fraudulent or dishonest behaviour, they may extend the restrictions beyond the standard 12-month period and apply for something known as a Bankruptcy Restrictions Order or Bankruptcy Restriction Order.
What is bankruptcy?
Bankruptcy is a legal status that usually lasts for a year and is designed to help you deal with debts you can’t afford to pay.
When you receive a bankruptcy order, your non-essential income and assets will be used to pay your creditors (the individuals or businesses you owe money to).
However, bankruptcy is typically reserved for people with debts of over £5,000 and as a last resort when other methods of debt relief have proven unsuccessful.
This is because it can have a serious impact on your finances, home, and job for several years, even after your bankruptcy period has come to an end.
How does bankruptcy work?
When you’re declared bankrupt, you will usually be able to keep the things you need to maintain a basic standard of living, such as your clothes, furniture, and tools needed to do your job.
However, the rest of your belongings will legally become the property of the official receiver who has the power to sell them and split the money among your creditors to repay them what they’re owed. This could include your home, car, and jewellery.
During a bankruptcy, your income will also be taken into account and you may still be asked to make payments towards your debt for up to three years.
The good news is, when you’re in an active bankruptcy, you’ll be protected from creditor contact and further court action for 12 months, after which time you will be discharged from your debts.
What are the rules during bankruptcy?
During bankruptcy, there are some rules you must follow to ensure your arrangement is successful.
These involve your income, your job, and how you cooperate with the official receiver.
For example, while you’re bankrupt, you won’t be able to:
- Obtain credit of £500 or more without telling the lender you’re bankrupt
- Become a company director or be involved with the establishment, promotion, or running of a company without the court’s permission
- Do business under a different company name from the one you were made bankrupt under without informing everyone involved of your original company name
- Act as an Insolvency Practitioner (IP)
What is a Bankruptcy Restrictions Order?
A Bankruptcy Restrictions Order (BRO) is a legal order from the court to extend your bankruptcy period when you have committed a bankruptcy offence.
This means you won’t be discharged from your bankruptcy after 12 months and will be expected to follow the bankruptcy rules for as long as the court orders you to.
A BRO can last anything from two to 15 years depending on the seriousness of your conduct or how many rules the court believes you have broken.
Some of the factors that will be taken into consideration include how much your creditors have lost, how likely you are to do it again, and whether you’ve been bankrupt before.
The following is a guide to how long bankruptcy restrictions could be extended under a BRO:
- Culpable behaviour (incurring debt you know you wouldn’t be able to settle): 2-5 years
- Reckless behaviour (racking up debts by gambling): 5-10 years
- Dishonest behaviour (actively getting involved in fraudulent activities): 10-15 years
Breaking the rules of your bankruptcy after you have been served with a BRO is a criminal offence, meaning you could be served with a fine or even sent to prison.
A massive thank you
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Why have I received a Bankruptcy Restrictions Order?
When the official receiver applies for a BRO against you, it could be because they believe you are guilty of any of the following actions:
- Deliberately paying off some creditors before others
- Borrowing money you knew you had no reasonable chance of repaying
- Continuing to run a business after you knew you couldn’t pay your debts
- Gambling or spending extravagantly
- Racking up debt by neglecting your business affairs
- Behaving fraudulently (e.g. purposely giving false details to obtain credit)
- Failing to cooperate with the official receiver
- Attempting to hide assets
- Giving away assets or selling them at less than their value
The court and official receiver will likely review your behaviour before and after bankruptcy to determine how long to extend your restrictions.
What should I do if I receive a Bankruptcy Restrictions Order?
Once your official receiver has gone to the court to seek more information about your financial affairs, you will receive a letter from the court informing you of their intention to apply for a BRO. Alternatively, you may be served with a notice of a BRO court hearing.
When you receive a letter informing you of a BRO, you will have 21 days to reply. However, you will only have 14 days to reply if you received a notice of a court hearing.
If you accept the allegations made against you, you can agree to enter into a Bankruptcy Restrictions Undertaking or Bankruptcy Restriction Undertaking (BRU), which is essentially the same as a BRO but removes the need for going to court and typically doesn’t last as long.
Once you are issued with a BRO or a BRU, your creditors will be informed and you will be sent a copy of the order in the post for your records.
The order will also be listed on the Individual Insolvency Register and the Bankruptcy Restrictions Search Facility for three months.
What are the rules during a Bankruptcy Restrictions Order?
Bankruptcy Restrictions Orders include the rules of a standard bankruptcy but with some extra rules applied. For example, under a BRO, you also can’t:
- Become the trustee of a charity
- Work in certain posts or enter into certain contracts in the education or health industries
- Hold certain posts in some public authorities or organisations
These rules also apply if you are subject to an interim BRO, which can happen if the court needs more time to make a decision about your case.
