Insolvency Made Clear: A Guide for Debtors

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Effect Of Bankruptcy ‘privileged’. The protection of privileged material applies to the spouse of the bankrupt, or anyone else who is required to undergo a private examination. It does not apply to the bankrupt when asked a question by the Trustee or for documents they possess. However, the Trustee cannot then disclose the privileged information to third parties. Two exceptions to the rule that the Trustee is entitled to know the bankrupt’s privileged information are where a) the advice has no relevance to the bankrupt’s estate (for example, it relates to custody of children), or b) the advice is about a possible claim against the Trustee themselves. Under either examination, the court can order HMRC to disclose their tax records or correspondence with the bankrupt under s369 for the purposes of the examination. This is another blocked avenue for a bankrupt who wishes to hide behind their ignorance of their financial affairs. Box 10: BANKRUPTCY OFFENCES A Trustee in Bankruptcy may find evidence that the bankrupt has committed a criminal offence. For details, see Chapter 7. The Trustee in Bankruptcy will not be the prosecutor. Instead, if the Trustee suspects an offence has been committed, they will report it to the Insolvency Service. The Insolvency Service will decide whether to forward the case onto prosecutors. A Trustee who considers that the bankrupt has not been forthcoming with information is likely to apply for a suspension of the automatic discharge of the bankruptcy: see Chapter 9. This will allow them more time to complete their investigation. 2.17 Length of bankruptcy and effect of discharge The typical length of bankruptcy is a year from the date where the order was made (s279 of the Act). Discharge will happen automatically unless the bankruptcy has been extended (see Paragraph 9.1 for when that can happen). After the bankruptcy is discharged, in most cases the individual is released from the bankruptcy restrictions and is not obliged to pay any debt which they owed before the bankruptcy. The slate is wiped clean. Discharge also removes future debts which the bankrupt was going to owe at the date of the presentation of the petition, and contingent debts which they might have owed if certain other events occurred. It also includes potential claims which could have been brought before the bankruptcy order, but were not. However, the discharge does not release the bankrupt from: 37
Insolvency Law Made Clear – A Guide For Debtors • Money owed under family proceedings – for example, child maintenance awards • Student loans accrued after September 2004 • Court fines • Debts created after the bankruptcy order. These debts are not provable in the bankruptcy (see Box 8 on page 26). This means that the Trustee will not include them when making a distribution to creditors. A discharged bankrupt still has obligations to assist their Trustee in Bankruptcy in relation to their estate (s333(3) of the Act). A Trustee may continue working after the bankruptcy has discharged, for example, if they decide to let the bankrupt live in their family home for a year and sell it afterwards, or if they have started a claim in order to recover property for the estate. Discharge does not release the bankrupt from any debt which arose as a result of fraud, or a liability to pay damages for personal injury although these debts are provable in the bankruptcy (see s281(3) and (5) of the Act). An example of where this mattered is Jones & Pyle Developments v Rymell [2021] EWHC 385 (Ch): an individual was ordered to pay a claimant £50,723 in 2013 after they made fraudulent misrepresentations when they sold the claimant land. The individual went voluntarily bankrupt shortly afterwards and his bankruptcy was discharged in 2014. Several years later, the individual retired and had access to his pension fund and so had the means to repay his debt. Since the original claim was based on fraud, discharge did not release the bankrupt from the judgment debt, and so the creditor was still able to enforce the judgment. If the original claim had been for innocent or negligent misrepresentations, or for breach of contract, the debt would have been released. See Chapter 9 for more details on the conclusion of bankruptcy, and when restrictions can continue on the bankrupt after a year. 38
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INSOLVENCY LAW MADE CLEAR A GUIDE F
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Published June 2021 ISBN 978-1-9163
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Acknowledgments I owe special thank
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Insolvency Law Made Clear - A Guide
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