It has been widely argued that the recent surge in personal insolvencies (currently running at over 10,000 per month) is not just the result of the increasing ease with which credit is obtainable but is also because ‘going bust’ has become an easy option since changes to the insolvency regime under the Enterprise Act 2002 took effect.

 

Among the changes was a reduction in the period between bankruptcy and discharge from bankruptcy. This has been decreased from three years to one. However, whilst some changes undoubtedly do make formal insolvency easier, there is a potential sting in the tail for some bankrupts.

 

In some circumstances, the bankrupt person will be subject to a ‘Bankruptcy Restriction Order’ (BRO). A BRO is granted on application to the court and is applied for when the bankrupt’s prior conduct makes it appropriate to do so. An example of when a BRO might be granted is when a bankrupt fails to keep proper financial records, conceals assets or has committed fraud.

 

A BRO prohibits a bankrupt from being a company director or a member of a limited-liability partnership, from holding a variety of elected offices and (crucially) from obtaining credit exceeding £500 without disclosing the BRO to the lender. Most lenders will refuse credit to people who are subject to a BRO. Clearly, being subject to a BRO would be very inconvenient, but the most critical aspect of the BRO is that it can last for up to fifteen years – extending well beyond the date of discharge from bankruptcy.

 

Recently, a man was given a BRO lasting three years when he became insolvent, with debts of over £450,000. He proposed an Individual Voluntary Arrangement to his creditors, who rejected it. Although he knew that he could not pay his debts, he had obtained cash advances totalling £9,500 on his wife’s credit card. He did not disclose the withdrawals in his statement of affairs when he went bankrupt and, when challenged regarding the withdrawals, offered a variety of incorrect explanations. It appeared that, in reality, the cash was used to fund gambling.