05: The effects of bankruptcy
Bankruptcy normally continues for a one year period, though culpable bankrupts may remain undischarged for longer than this.The trustee will probably encourage a sole trader to continue trading, so that they earn income and enable the court to make an income payments order or an income payments agreement. However, it is a criminal offence for undischarged bankrupts:
- To obtain credit of more than £500; or
- To trade under any name except that in which they were declared bankrupt by the court, without disclosing their bankruptcy.
For many bankrupts, the disabilities will not last long.
- Non-culpable bankrupts are given an automatic discharge after one year of bankruptcy. Such people may have experienced business failure through some misfortune rather than their own fault.
- Culpable bankrupts, eg those who have traded while insolvent or who have not kept reasonable records of their trading, will also be discharged after one year of bankruptcy, but with some continuing limitations imposed on them which may continue for up to 15 years.
These are detailed rules, on which professional guidance should be sought.
Effect of bankruptcy on pensions
Most occupational and many personal pension schemes contain a forfeiture clause. This means that on the bankruptcy of a scheme member, the scheme trustees may apply the forfeited benefits for one or more of the bankrupt’s dependants. So, the funds might be kept out of the hands of the trustee in bankruptcy.
Bankruptcy restriction orders and undertakings
Restrictions of 2-15 years can be imposed on bankrupts who have acted dishonestly, and/or do not co-operate with the official receiver or the trustee in bankruptcy.
The effects of discharge are that, subject to important exceptions, the former bankrupt is free of debts, even if these have not been paid in full.
