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What is an Undischarged Bankrupt and What Restrictions Apply?

Bankruptcy can be confusing and stressful if you or someone you know is dealing with bankruptcy, it is essential to understand what being an undischarged bankrupt means for you and the restrictions that come with it.

Our expert insolvency and bankruptcy lawyers are here to guide you through this challenging period and provide the support you need. Call us on 0207 459 4037 for a Free Consultation or book using our calendar form below.

What is Bankruptcy?

Bankruptcy is a legal process where individuals who can’t pay their debts get help to reduce or eliminate what they owe. When you are declared bankrupt, someone called a trustee in bankruptcy takes control of the individual’s assets, money and belongings to pay off the debts as much as possible. While it can clear some of your debts, it also comes with strict rules you must follow. Such as:

  • Give the Official Receiver information on your finances, bank account & assets
  • Tell your trustee about any increase in income
  • Tell anyone who offers to loan you over £500 that you are bankrupt
  • Go to court to explain why you owe money if required

How does an individual become bankrupt? 

There are several ways where an individual could become bankrupt in the UK including:

MethodDescription    Cost
Voluntary BankruptcyYou can apply to make yourself bankrupt if you can’t pay your debts. You do this online.A fee of £680 is paid to the Insolvency Service. You can apply and make the payment online through the government’s official bankruptcy application service.
Creditor’s PetitionA creditor’s petition is a legal process where a creditor asks the court to make a debtor bankrupt if they owe £5,000 or more. Costs to being a creditor’s petition are around £3,500, including a court fee, a deposit to the Insolvency Service, and legal fees which are paid by the creditor. The creditor files the petition, serves it to the debtor, and attends a court hearing where the court may issue a bankruptcy order if satisfied. Once the order is made, the official receiver takes control of the debtor’s assets to repay creditors.
Failure to Pay an Individual Voluntary Arrangement (IVA)If you fail to stick to an IVA payment plan, your supervisor might ask the court to make you bankrupt.Cost of an IVA is around £3,000, The payment you need to make should go to your IVA supervisor. The IVA supervisor is typically a licensed insolvency practitioner who manages your IVA and distributes any payments to your creditors.

What is an Undischarged Bankrupt?

An undischarged bankrupt is an individual who has been declared bankrupt, meaning a trustee has taken over their assets to pay off their debts, but they have not yet been released from their bankruptcy status.

The undischarged bankruptcy period typically lasts for 1 year, but it can be extended if the individual fails to comply with the rules. During the time that the bankrupt is undischarged, the bankrupt individual must adhere to specific legal restrictions and obligations, such as limitations on obtaining credit, running a business, and international travel.

Undischarged Bankrupt Case Example

Sarah was declared bankrupt by the court on 1 January 2024. From this date, she entered a 1-year undischarged period during which she must follow specific rules:

  1. Credit: Sarah cannot take out a loan or obtain credit over £500 without informing the lender of her bankruptcy status.
  2. Business Activities: She cannot manage, form, or promote a company without court permission.
  3. Travel: If Sarah wishes to travel abroad, she must first obtain permission from her trustee.

Sarah must comply with these restrictions until 1 January 2025, unless her trustee or the Court extends her bankruptcy period due to non-compliance.

What Is A Trustee in Bankruptcy?

A trustee in bankruptcy is someone in a position of trust who manages property or responsibilities for someone else’s benefit. In bankruptcy, the trustee’s main role is to oversee the process, ensuring the bankrupt person’s assets are properly managed and distributed to creditors according to the law. The trustee is usually the Official Receiver or an insolvency practitioner.

The Bankruptcy Process in England and Wales

The 4 steps of the bankruptcy process in England and Wales depending on whether it is a voluntary bankruptcy or creditor-initiated bankruptcy:

1. Filing for Bankruptcy

a. Initiated by You:

– Application: Apply online through the government website.

– Fee: £680 (must be paid in full).

b. Initiated by Creditors:

– Petition: Creditors can apply if you owe at least £5,000.

– Costs: £1,500 deposit for managing the bankruptcy and £332 court fee.

2. Court Order

– Bankruptcy Order: Issued by the court to declare you bankrupt.

– Trustee Appointment: An Official Receiver or a private insolvency practitioner is appointed to manage your assets.

3. Undischarged Period

– Duration: Typically lasts for 1 year.

– Extensions: Possible if the bankrupt individual fails to comply with bankruptcy rules, such as not cooperating with the trustee, failing to disclose all assets, or attempting to hide assets. 

4. Discharge

– Automatic Discharge: Usually after one year if all conditions are met.

– Post-Discharge: Released from most debts, but bankruptcy stays on your credit file for six years.

Our expert insolvency and bankruptcy lawyers are here to help. If you have any questions, or have concerns about your case, please do not hesitate to call or book a Free Consultation today by telephone on 0207 459 4037 or through our booking form below.

What are the restrictions on Undischarged Bankrupts?

If you are an undischarged bankrupt, there are several rules you need to follow to avoid further financial problems and to protect your creditors including:

1. Financial Restrictions

a. Credit: You cannot borrow more than £500 without telling the lender about your bankruptcy. For example, if Sarah wants to take out a £1,000 loan, she must tell the lender she is bankrupt.

b. Business Activities: You cannot start, manage, or promote a company without the court’s permission. For example, John wants to start a new business. He needs to get permission from the court first. Without this permission, he cannot legally run the business.

c. Bank Accounts: You might only be able to use basic bank accounts with no overdraft facilities. Your bank account may also be frozen and closed.

2. Employment Restrictions

a. Professional Licenses: Some professions (e.g., lawyers, accountants) may take away your practising license or place restrictions on your employment and status.

b. Employment Roles: You cannot be a company director whilst you are an undischarged bankrupt. For example, Lisa, who is a director of a small company, must step down from her position and cannot be a director until she is discharged from bankruptcy.

3. Travel Restriction – You may need permission from your trustee or the court to travel abroad.

Can I get discharged before 1 year?

Yes. In England and Wales, the standard period for bankruptcy is 12 months. However, an individual can be discharged early if the official receiver or the trustee in bankruptcy decides that the administration of the bankruptcy can be concluded sooner. This decision is often based on the cooperation and conduct of the bankrupt individual and whether all inquiries and distributions to creditors have been satisfactorily completed.

Our expert insolvency and bankruptcy lawyers have some tips for early bankruptcy discharge including:

  1. Comply with All Requirements: Follow all bankruptcy rules and instructions from your trustee. Complete any forms and attend all required meetings or hearings.
  2. Make Regular Payments: If you have an Income Payments Agreement (IPA) or Income Payments Order (IPO), make sure to make all payments on time. Showing financial responsibility can improve your chances.
  3. Provide Full Cooperation: Be transparent and cooperative with your trustee. Provide all requested information and documents promptly.
  4. Demonstrate Exceptional Circumstances: If you have special circumstances, such as a significant change in income or health issues, provide evidence to support your case for early discharge.

Can I remove my Bankruptcy Order?

Yes, you can, a cancelled bankruptcy order is also referred to as Bankruptcy Annulment. Bankruptcy annulment is a legal process that cancels a bankruptcy order, effectively treating it as though it never existed. This can provide significant relief for individuals who have been declared bankrupt, as it removes the bankruptcy status from their record, allowing them to start afresh without the stigma and restrictions associated with bankruptcy.

How to apply for a Bankruptcy Annulment?

A bankruptcy annulment can be granted under 3 main circumstances:

  1. Payment in Full: If the bankrupt individual pays their debts in full, including any interest and costs incurred since the bankruptcy order was made, they can apply for an annulment. This often involves negotiating with creditors to settle the outstanding amounts and obtaining the necessary funds to clear all debts.
  2. Improper Bankruptcy Orders: If the court finds that the bankruptcy order should not have been made in the first place, it can annul the order. This might occur if there was an error in the process or if the individual was not actually insolvent. The individual would need to present evidence to prove that the bankruptcy order was incorrect.
  3. Voluntary Arrangement: If the bankrupt individual enters into an Individual Voluntary Arrangement (IVA) with their creditors, and the creditors agree to this arrangement, the court can annul the bankruptcy. An IVA is a formal agreement between the individual and their creditors to pay back all or part of the debts over a period.

How do I reverse a Bankruptcy Order, making it as if it never existed?

In this case, you should apply for bankruptcy rescission. Bankruptcy rescission is a legal process that reverses a bankruptcy order, effectively removing it as though it never occurred. This differs from annulment, which often focuses on specific grounds such as the repayment of debts or procedural errors. Rescission, on the other hand, can address a broader range of circumstances such as:

1. Material Changes in Financial Situation

The debtor’s financial circumstances have significantly improved since the bankruptcy order, such as receiving a substantial inheritance, winning a legal settlement, or obtaining a new high-paying job.

2. New Evidence

New evidence emerges that was not available at the time the bankruptcy order was made, which could include errors in the original assessment of the debtor’s financial status or previously undisclosed assets.

3. Errors in the Bankruptcy Process

There were procedural errors or irregularities in how the bankruptcy order was issued.

Common Questions and Concerns on Bankruptcy in the UK:

Q: How Long Does Bankruptcy Last?

A: The standard period for bankruptcy is 1 year. However, this can be extended if the individual fails to comply with the obligations or restrictions imposed.

Q: Can an Undischarged Bankrupt Travel Abroad?

A: Yes, but they may need to obtain permission from their trustee or the court. Unauthorised travel can result in severe consequences.

Q: What Happens if an Undischarged Bankrupt Breaks the Restrictions?

A: Violating the restrictions can lead to criminal prosecution and an extension of the bankruptcy period.

Q: Can I start a new business while bankrupt?

A: No, you cannot start, manage, or promote a new business without court permission.

Q: Will my bankruptcy be public?

A: Yes, bankruptcies are recorded on the Individual Insolvency Register, which is accessible to the public.

Q: How can I get discharged early from bankruptcy?

A: Getting out of bankruptcy early is rare and usually needs a judge’s approval. You have to show that you’ve done everything right and that there are special reasons for ending it early. The judge will only agree if they are sure you’ve followed all the rules and there are no issues left to resolve. Most people stay bankrupt for the standard one-year period.

Q: What If I Dispute My Bankruptcy?

A: If you think the bankruptcy decision was wrong or you have good reasons to challenge it, you can ask the court to cancel it. You need to prove either that the bankruptcy order should never have been made or that you have paid off all your debts. You’ll likely need a lawyer and may have to go to a court hearing to explain your case.

Q: What If I Was Declared Bankrupt Without Knowing?

A: It’s rare to be declared bankrupt without being told, as the court usually makes sure everyone knows. If this happens to you, contact the court and the Official Receiver right away to sort it out. You might need to show proof that you were not properly informed and that the bankruptcy should be cancelled by way of consent or an urgent application at Court.

Q: What is the Role of the Trustee in Bankruptcy?

A: The trustee in bankruptcy is appointed to handle your bankruptcy. Their main role includes:

  1. Managing Your Assets: Taking control of and selling your property and possessions to pay off your debts.
  2. Ensuring Compliance: Make sure you follow all the bankruptcy rules.
  3. Investigating Affairs: Checking your financial history for any signs of fraud or wrongdoing.
  4. Distributing Funds: Sharing the money from sold assets fairly among your creditors.
  5. Providing Reports: Updating the court and creditors on how your bankruptcy case is progressing.

Expert Insolvency and Bankruptcy Lawyers in London

Understanding the restrictions and legal obligations during the undischarged period of bankruptcy is essential for anyone navigating this challenging process. Our expert lawyers are here to help you.

For expert guidance and support through your bankruptcy process, contact our team at 0207 459 4037 for a Free Consultation.

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