Bankruptcy — Key Legal Consequences and Protections
Frequently Asked Questions
What assets are exempt from bankruptcy — what can I keep?
The following are exempt from the bankruptcy estate: tools, books, and other equipment necessary for and used by the bankrupt personally in their employment or business (up to £1,075 in value — the prescribed amount, which the Insolvency Rules 2016 set out); a motor vehicle of modest value that the bankrupt needs to travel to work (where public transport is not available or reasonably practicable); household furniture and equipment necessary for the basic domestic needs of the bankrupt and their family (beds, white goods, kitchen equipment, basic furniture). The family home itself is not exempt — it vests in the trustee — but the statutory protections in s.283A Insolvency Act 1986 delay and sometimes prevent a forced sale. Pension rights are generally protected from the bankruptcy estate — though the official receiver may claim income drawn from a pension as surplus income.
Can I be a company director during or after bankruptcy?
No — an undischarged bankrupt cannot be a company director, a liquidator, administrator, receiver, or manager of a company, or act in the promotion, formation, or management of a company without court permission (Company Directors Disqualification Act 1986). After discharge, the bankruptcy restrictions are lifted — however, any Bankruptcy Restrictions Order (BRO) imposed by the court for dishonest or culpable conduct continues for between 2 and 15 years. A solicitor advises on the position for the specific circumstances and any BRO challenge where the official receiver has sought an order.
What is a Bankruptcy Restrictions Order and how can I challenge it?
A Bankruptcy Restrictions Order (BRO) is made by the court on the application of the official receiver where the bankrupt has engaged in dishonest, culpable, or irresponsible conduct — including fraudulent transactions, preferring particular creditors, incurring debt without reasonable expectation of repayment, gambling, or failing to co-operate with the official receiver. A BRO extends the bankruptcy restrictions (including the prohibition on acting as a director) for between 2 and 15 years after discharge. A solicitor represents the bankrupt at the BRO hearing, challenges the specific allegations, and (where appropriate) negotiates the acceptance of a Bankruptcy Restrictions Undertaking (BRU) for a shorter period.
An asset — a legacy or inheritance — arises after my bankruptcy petition. Does it vest in the trustee?
Yes — property acquired by the bankrupt in the period after the bankruptcy order but before discharge — including legacies, inheritances, lottery wins, and compensation payments — vests in the trustee and must be disclosed immediately (IA 1986 s.307). Failure to disclose is a criminal offence. A solicitor advises on the bankrupt's disclosure obligations and on whether any part of the after-acquired asset can be applied towards the bankrupt's personal needs.
Can a bankruptcy order be annulled — and what is the effect of annulment?
A bankruptcy order can be annulled under IA 1986 s.282: (i) where it ought not to have been made (for example, because the debt was genuinely disputed or the creditor already had adequate security); or (ii) where the bankruptcy debts and expenses have been paid in full. An annulment treats the bankruptcy as if it never occurred — the order is removed from the Individual Insolvency Register, and any property that vested in the trustee is returned (subject to any dealings already made). This is a significantly better outcome than discharge. A solicitor applies for annulment as early as possible in the proceedings.