If you are made bankrupt, the restrictions around your finances will usually last for 12 months. However, if the official receiver (the person dealing with your bankruptcy) thinks you have been dishonest or are to blame for your debts, they could extend these restrictions.
To do this, they would apply to the courts for a Bankruptcy Restrictions Order (BRO).
In this guide, we’ll explain more about Bankruptcy Restrictions Orders, including; some reasons a receiver might think a BRO is necessary, the differences between a Bankruptcy Restriction Order and a Bankruptcy Restrictions Undertaking (BRU), and the kind of restrictions that come with a BRO or a BRU.
How does bankruptcy work?
To understand exactly how a Bankruptcy Restrictions Order works, it’s first useful to get a clear understanding of what bankruptcy involves.
Bankruptcy is usually seen as a last resort way of debts for people who otherwise no longer have any way of settling what they owe in a reasonable time.
Declaring bankruptcy is something people can pursue themselves – but people can also be forced into bankruptcy by creditors (companies you owe money to) if you owe £5,000 or more and are not making payments. Being forced into bankruptcy is usually a last resort for creditors however, as it will usually mean they do not recoup what they are owed.
What happens when you’re bankrupt?
If you’re declared bankrupt, control of your finances and assets (things of value that you own) is handed over to either an official receiver or your insolvency practitioner. It is then their job to use any money and assets you have to settle as much of your debt as possible.
This can mean having properties and possessions sold. Anything that is not essential to your everyday living is likely to be sold – including your home, your car, and any valuables you might have.
Bankruptcy also puts some strict restrictions on things you can do during this year. These things include:
- Not borrowing more than £500 without telling the lender your bankrupt
- Acting as a director of a limited company registered in the UK without court permission
- Creating, managing, or promoting a company without the court’s permission
- Managing a business with a different name without telling people you do business with that you’re bankrupt
- Working as an Insolvency Practitioner
Your conduct before and during bankruptcy
If you break any of the restrictions that are put on you when you’re bankrupt or you’ve done anything prior to bankruptcy that lessens the impact of the restrictions, you will attract the attention of the official receiver.
It’s useful to think of an official receiver as an auditor that keeps close watch over everything you do relating to finances, assets, or business interests. Don’t forget, they have full control over your financial life – so they will quickly spot anything that they deem to be against the rules of bankruptcy.
Where does a Bankruptcy Restriction Order fit into this?
The official receiver will carefully monitor your business affairs as part of your bankruptcy order. If this official receiver thinks anything you’re doing is against the rules of your order, they will likely seek the court’s permission to take a further look at your affairs.
If a court hearing is called and your behaviour is deemed to be breaking the rules of your bankruptcy, they may impose a Bankruptcy Restrictions Order.
Typical behaviour that will lead to a BRO application include:
- Failing to cooperate with the official receiver
- Giving assets away or selling them at a highly-reduced price
- Paying off certain creditors rather than others
- Causing your debts to increase with poor business practices
- Gambling or spending beyond your means
- Failing to deliver on goods or services that have already been paid for
- Not keeping/producing accurate financial information to explain losses of property or money
- Giving false details when borrowing money or trying to obtain credit
- Attempting to hide assets or provide a false impression of your financial situation
How is a Bankruptcy Restriction Order different to bankruptcy?
If you become subject to a BRO, you are now legally obliged to followed the restrictions set out by your bankruptcy. In other words, breaking this legal order means your actions will then be considered a criminal offence. This could mean being fined or even sent to prison.
At the very least a BRO will extend the period that your restrictions run for under the observation of an official receiver.
How long this extension is for depends on the seriousness of the behaviour that led to the BRO being imposed. Factors considered will include:
- How much your creditors are considered to have lost
- Your attitude towards working with the official receiver
- Your awareness of the situation
- How likely you are to do it again
- Whether you’ve been bankrupt before
If you are deemed to have displayed ‘Culpable Behaviour’ then you can expect restrictions to be extended by 2-5 years. An example might be getting into debt knowing you don’t have the means to pay it off.
If the court decides you have displayed ‘Reckless Behaviour’ then restrictions could be extended by 5-10 years. An example could be building up gambling debts that you know you have no means to pay off.
If your behaviour is considered to be ‘Dishonest’ – then restrictions could be extended for anywhere between 10-15 years. An example of this would be any action that’s seen to be defrauding your creditors or others.
Additional restrictions
You will also be subject to more restrictions when compared to standard bankruptcy. These additional restrictions mean you cannot:
- Become a trustee of a registered charity
- Be the trustee of many pension schemes
- Work in some education positions – including as a school governor
- Work in various posts or enter into certain contracts in the health industry
- Hold certain posts in public authorities or similar organisations – such as becoming a local councillor
Bankruptcy Restrictions Order vs Bankruptcy Restriction Undertaking
As we’ve previously discussed, if the official receiver thinks you have broken the rules of your bankruptcy, they will apply to the court to consider a BRO. You’ll be given notice of your court hearing and asked if you intend to challenge the accusations.
At this stage, you should seek specialist legal advice.
If you decide to attend the court hearing, you will either leave with a DRO or – if your behaviour can be explained or you are not found to be guilty of breaking any rules – you will leave with the previous standard restrictions in place.
However, you have the option to just accept the allegations against you without attending court. If you do this, you’ll be issued with a Bankruptcy Restriction Undertaking. A BRU has the same legal effect as a DRO – but since you’ve accepted the restrictions with no contest, it’s possible that the period of time the restrictions are extended by will be reduced.
After being issued a BRO or BRU
If you are issued with a BRO or a BRU, you will be sent a copy of the order in the post. your creditors will also be told about the outcome of the process.
The order will also be listed on the Individual Insolvency Register – as well as on the Bankruptcy Restrictions Search Facility for 3 months – where members of the public (including journalists) can look in detail at the circumstances relating to your order. Details may also appear in press releases.
