Adrian
“Dear Steve,
Hi, i lost my job in April and have been unable to get another job, i have £8000 on credit cards, have been making the payments with savings i have which are about to run out so am considering bankruptcy.
Should i just cancel the payments to the card companys untill i go bankrupt? I have been told to “max out” on my cards before i take the plunge, would that count as fraud?
I also plan to retrain in a different trade, what problems would being bankrupt cause if starting a business in a year or 3 as i would obviously need to be able to use banking services?????? Any advice appreciated.
Adrian”
The Answer:
Dear Adrian,
Assuming by your £ sign, that you are in England, you don’t want to intentionally run up your credit card debts before petitioning for bankruptcy with the court. The Insolvency Service in the UK takes those matters seriously and even publishes the results of their investigations.
If you are found to have behaved fecklessly then you can be subject to a Bankruptcy Restriction Order (BRO) for up to 15 years. During that time, you would not be eligible to go bankrupt again.
Here is a sample case from the public record of the Insolvency Service:
Name: Richard Norman
Address: I omitted that but it is online
Unfit Conduct:
Between 1 September 2007 and 18 November 2008, Mr Richard Norman ( Mr Norman ) incurred credit of £22,906 (excluding interest and charges) with no reasonable expectation of repayment. In particular: As at 1 September 2007, Mr Norman had unsecured liabilities of at least £35,176 and no assets, resulting in a deficiency of at least £35,176. Mr Norman’s monthly household income totalled £588. His monthly household expenditure was £783, and his minimum credit card and loan repayments amounted to £351. He had a monthly income deficit of at least £546 and was insolvent. Between 1 September 2007 and 18 November 2008 Mr Norman obtained further credit of £22,906 increasing his monthly deficit to £933. He states that he used this credit to meet repayments to creditors, for drinking, and to gamble. In 3 credit card and loan applications during this period Mr Norman stated that he was employed as a builder and was earning £2,666 a month, whereas at the time he was unemployed and his monthly income was £588
Banking accounts for bankrupts in England is a difficult task. Recent bankrupts are finding it increasingly difficult to get a bank to open a current account at all. But while it is difficult, it is not impossible.
A major obstacle in your desire to start a limited company while bankrupt would be the limitation on the extension of credit while you are bankrupt. The bankruptcy period in the UK typically lasts for 9 months, after which time you will get your discharge notice and can then go on your merry way and do what you want.
You will find the regulations below and I have made bold the important sections regarding business while an undischarged bankrupt.
Current Restrictions on Bankrupts in the UK
25.4 Introduction
When an individual is subject to a bankruptcy order, he or she is subject to a range of disabilities or restrictions until discharged from bankruptcy.
These disabilities or restrictions are imposed by a variety of sources including the Insolvency Act 1986 (IA86), the Company Directors Disqualification Act 1986 (CDDA86) and other Acts of Parliament, regulations under consumer legislation and local government bye-laws. The Enterprise Act 2002 (EA2002) removes some of the restrictions that applied automatically as a result of bankruptcy, but seeks to protect the public and business community against the minority of bankrupts whose conduct has been dishonest, reckless or otherwise culpable by introducing BROs, IBROs and BRUs to impose restrictions on such bankrupts (see Section 2 regarding restrictions applicable against an individual subject to a BRO/IBRO or BRU).
25.5 Public protection
The restrictions imposed provide a means of public protection in return for the bankrupt being able to make a fresh start. This part looks at the restrictions imposed on undischarged bankrupts by IA86 as amended by EA2002 and CDDA86. See Section 2 with regard to the restrictions which apply where an individual is subject to a BRO/IBRO or BRU.
25.6 Obtaining credit whilst undischarged from bankruptcy
If a person subject to a bankruptcy order wishes to obtain credit to the extent of the prescribed amount or more, either alone or jointly with another person, he/she must disclose the fact of his/her bankruptcy (or that his/her estate has been sequestrated in Scotland) to the person from whom he/she seeks to obtain credit [Note 1].The prescribed limit is currently £500 and failure to disclose the fact of his/her bankruptcy will render the bankrupt guilty of an offence. The official receiver should note that, although credit might have been incurred contrary to the law, it is still a valid post-bankruptcy debt for which the bankrupt remains liable.
The £500 limit is a single transaction with one lender, but once the bankrupt has reached or exceeded that £500 limit with one lender and “triggered” the offence, then any other amounts borrowed (i.e. the total debt accumulated by the bankrupt) would need to be taken in to account. For example, if the undischarged bankrupt never borrowed more than £499 from the same lender, he/she would not trigger the offence, but as soon as the credit obtained from one lender reaches £500 or greater (which may comprise accumulated unpaid smaller amounts from the same lender), then all other credit transactions obtained from any lender by the undischarged bankrupt, would be taken in to account in any action taken against the bankrupt, even if in themselves, these other amounts are less than £500.
Obtaining credit is specifically stated to include cases when goods are bailed under hire-purchase agreements and conditional sale agreements and also to include payment made to the bankrupt in advance for the supply of goods or services [Note 2].
25.7 Operating a bank account whilst undischarged from bankruptcy
An undischarged bankrupt is not prohibited by law from operating a bank account but the restrictions on obtaining credit apply to the operation of any post bankruptcy account. An undischarged bankrupt will not necessarily find it easy to open or operate a bank account, as individual banks make their own commercial decisions and may have a policy of refusing to operate accounts for undischarged bankrupts. If requested to do so, the official receiver may write to a bank to confirm that he/she has no objection to the undischarged bankrupt operating a bank account but the official receiver must not sign any disclaimer relating to the operation of the account.
25.8 Engaging in business whilst undischarged from bankruptcy
If an undischarged bankrupt wishes to engage directly or indirectly in any business under a name other than that in which he/she was adjudged bankrupt, he/she must disclose the name under which he/she was adjudged to all persons with whom he/she enters into business transactions otherwise he/she is guilty of an offence [Note 3] For example, if after bankruptcy and before his discharge, Bert Jones wished to trade as ‘Cheese Emporium,’ he would have to disclose that the proprietor of that business was Bert Jones.
The individual is not prohibited from trading in partnership, although he/she must still disclose the name in which he/she was adjudged bankrupt.
25.9 Dispositions of property
Dispositions of property may be rendered void due to the operation of the Insolvency Act. Between the date of the presentation of the petition and the vesting of the bankrupt’s estate in the trustee a disposition of property, including cash, is void unless made with the consent of, or subsequently ratified by the Court. This includes a transfer of an interest in the matrimonial home (Re Flint [1993] Ch 319).
Where a debt is incurred to a banker or other person after the commencement of the bankruptcy by virtue of making a payment which is void under this section, the debt will be deemed to have been incurred before the commencement of the bankruptcy unless:
(a) the banker or person had notice of the bankruptcy before the debt was incurred, or
(b) it is not reasonably practicable for the amount of the payment to be recovered from the person to whom it was made.
Dispositions made prior to the presentation of the petition may be set aside by the court on the application of the trustee if they were at an undervalue or constituted a preference[Note 4]. A general assignment of book debts by a bankrupt who engaged in a business is void against the trustee unless the debts were paid for prior to the presentation of the bankruptcy petition or the assignment has been registered under the Bills of Sale Act 1878 [Note 5].
For more information on antecedent recoveries see chapter 31.4.
25.10 Fraudulent disposal of property
The bankrupt is guilty of an offence if he/she makes or causes to be made, or has in the period of 5 years ending with the commencement of the bankruptcy made or caused to be made, any gift or transfer of, or any charge on, his/her property, if that disposal was fraudulent [Note 6].The reference to making a transfer of or charge on any property includes causing or conniving at the levying of any execution against that property.
25.11 Absconding
A bankrupt must hand over the property comprising his/her estate to the official receiver or the trustee. If a bankrupt leaves England and Wales, or attempts to or makes preparations to leave and has in his/her possession property which is worth more than the prescribed limit (currently £1,000), he/she will be guilty of an offence and liable to prosecution[Note 7].
See also Chapter 13 Part 7 which details the civil remedies available to prevent a bankrupt from absconding or leaving the jurisdiction.
25.12 Restrictions on holding office
Once a bankruptcy order has been made against an individual, there are various offices which the individual must not accept, or must vacate if already held. Restrictions on holding office imposed by other legislation are outlined at Part 2.
25.13 Insolvency practitioner
Section 390(4) [Note 8] prohibits a bankrupt from acting as an insolvency practitioner before he/she is discharged from bankruptcy.
25.14 Parliamentary disqualification in bankruptcy (NI) or where estate is sequestered (Scotland)
Section 427(1) previously disqualified from sitting or voting in the House of Lords, from being elected to, sitting or voting in the House of Commons, and from sitting or voting in a committee in either House, any individual subject to a bankruptcy order made in England and Wales, or Northern Ireland, or whose estate was subject to sequestration, in Scotland. The disqualification ceased on discharge.
As a result of the implementation of section 266(2) of EA 2002, parliamentary disqualification under section 427(1)[Note 9] is now limited to those who are the subject of a bankruptcy order made in Northern Ireland, or where a court in Scotland has awarded sequestration of an individual’s estate.Thus an MP who is made bankrupt in England and Wales is not automatically disqualified from membership (see Annex regarding the disqualification of an MP subject to a BRO/IBRO/BRU).
The provisions also apply to members of the Scottish Parliament [Note 10], National Assembly for Wales, [Note 11] and the Northern Ireland Assembly [Note 12].
25.15 Liquidation committee
An undischarged bankrupt may not represent a member of a liquidation committee. [Note 13] A person who has been a member of a liquidation committee has his/her membership terminated automatically pursuant to Rule 4.161(1)(a) [Note 14]1if he/she becomes bankrupt, although pursuant to subsection (2) of the same Rule, his/her trustee replaces him/her as a member of the committee.
25.16 Creditors’ committee
Similar provisions as in paragraph 25.15 apply in relation to a member of a creditors’ committee.[Note 15] [Note 16]
25.17 Promotion, formation and management of a company
It is an offence for an undischarged bankrupt to act as a director of, or directly or indirectly take part in or be concerned in the promotion, formation or management of a company, except with the leave of court. [Note 17]
If a company has adopted Table A as its articles of association, a director is obliged to vacate office if he/she becomes bankrupt or makes any arrangement or composition with his/her creditors generally.
25.18 Undischarged bankrupt, application for leave to act (CDDA 86)
The court to which a bankrupt must apply for leave to take part in the promotion, formation or management of a company must be the court by which the person was adjudged bankrupt. The leave of the court will not be given unless notice of intention to apply for leave has been served on the official receiver. If the official receiver is of the opinion that it is not in the public interest for the application to be granted, he/she must attend the hearing and oppose the application
25.19 Limited Liability Partnerships
Regulation 4(2) of the Limited Liability Partnership Regulations (SI 2001/1090] [Note 18] applies the CDDA86 to limited liability partnerships (LLPs), all references to a company are to include an LLP and all references to a director include a member of an LLP. As a result of the application of section 11 of the CDDA86, an undischarged bankrupt cannot be a member of an LLP [Note 19].
