Bankruptcy restrictions orders and undertakings

Bankruptcy normally ends after 12 months, and most people are discharged with their remaining debts written off. The restrictions are not a punishment added to your debts; they limit what you can do while they are in force.

A bankruptcy restrictions order is a court order that extends restrictions on someone after bankruptcy¹. A bankruptcy restrictions undertaking does the same job without going to court, because you agree to it. Both are applied if the official receiver finds you were dishonest or irresponsible². The purpose, as the government puts it, is "deterring debtors from misbehaving or being dishonest before or during their bankruptcy and providing creditors with a level of protection from such debtors once their bankruptcy had ended"³.

The key point for anyone facing one is that the restrictions outlast the bankruptcy itself. Ordinary bankruptcy restrictions stop once your bankruptcy ends, when you are discharged, or if the bankruptcy is annulled before you are discharged⁴. A bankruptcy restrictions order or undertaking keeps those restrictions running for years afterwards, and it is your responsibility to comply with them⁵.

What a bankruptcy restrictions order means

A bankruptcy restrictions order is a legal order created by the court¹. It does not replace your bankruptcy or change which debts are written off. What it does is extend the restrictions that apply during bankruptcy so they continue after you would otherwise have been discharged.

The restrictions exist because bankruptcy is meant to give an honest debtor a fresh start. Where the official receiver concludes that you acted dishonestly or recklessly, the protection that a normal discharge gives is withdrawn for a set period. The government's own explanation is that restrictions were introduced to deter misbehaviour and to protect creditors once the bankruptcy has ended³.

There are two forms. A bankruptcy restrictions order is made by a court. A bankruptcy restrictions undertaking is a voluntary agreement you sign, usually to avoid the cost and publicity of a court hearing. Both have the same effect on what you can and cannot do, and both are applied on the same trigger: the official receiver finding you were dishonest or irresponsible².

If you are subject to restrictions, it is your responsibility to comply with them⁵. That matters because the consequences of breaching them are serious. The official receiver may investigate and interview you, the court can suspend your discharge, and breaking the restrictions can be a criminal offence leading to a fine, imprisonment in extreme cases, or a further undertaking that makes the restrictions last longer⁶.

How long restrictions last: two to 15 years

Within that range, the length depends on how serious the official receiver considers your conduct to have been.

In Scotland the position is different. There, the Accountant in Bankruptcy can make a bankruptcy restrictions order lasting between two and five years⁹.

It is worth separating the length of the restrictions from the length of the bankruptcy itself. The bankruptcy is normally over after 12 months. The restrictions are what continue. If you are discharged but subject to an order, you are no longer bankrupt, but you are still bound by the restrictions until the order ends.

Why restrictions get extended beyond the usual 12 months

The trigger for a bankruptcy restrictions order or undertaking is a finding by the official receiver that you were dishonest or irresponsible². That is a higher bar than simply having debts you could not pay. Bankruptcy itself is not misconduct; the extension is about how you behaved before or during it.

The official receiver can investigate and interview you as part of deciding whether to seek an order⁶. If the official receiver concludes that your conduct warrants it, the case can go to court for an order, or you can sign an undertaking instead. The same logic applies to debt relief orders, where restrictions can be extended in certain situations with a debt relief restrictions order or undertaking, usually where there has been dishonest behaviour¹¹.

The consequences of breaching restrictions are separate from the decision to impose them. Breaking the restrictions can be a criminal offence and could lead to a fine, imprisonment in extreme cases, or a bankruptcy restriction undertaking or order making the restrictions last longer⁶. The court can also suspend your discharge⁶.

If you believe someone is breaking the terms of their order, you can report it. You can report someone you suspect of breaking the terms of a bankruptcy restrictions order or undertaking, a debt relief order, or a debt relief restrictions order or undertaking¹².

Borrowing, work and business under restrictions

The restrictions touch three areas: borrowing, work and running a business.

On borrowing, the £500 credit disclosure rule that applies during bankruptcy also applies for as long as a bankruptcy restrictions order is in force⁷. That means you must tell a lender about your status before taking out credit above that threshold. A bankruptcy restrictions order does not by itself ban you from borrowing, but lenders are unlikely to lend once they know, and failing to disclose can breach the restrictions.

On work, there are some things you will not be able to do when you are bankrupt¹³, and more job restrictions apply where the official receiver extends your bankruptcy restrictions¹⁴. You are unable to work in some types of jobs as an undischarged bankrupt¹⁵. Where the official receiver extends your bankruptcy restrictions, the jobs you cannot do include local or national government roles such as a councillor or MP, school governor, and magistrate¹⁶.

On business, you cannot be the director of a limited company without court permission while the restrictions apply⁶. The same rule applies during bankruptcy itself in England, Wales and Northern Ireland, where you cannot be a company director¹⁷. Self-employment is possible, but restrictions apply¹⁴.

In Scotland restrictions work differently

In Scotland the process is different¹⁸. Scottish bankruptcy, called sequestration, works differently to the bankruptcy available in the rest of the UK¹⁹. To apply for either type of Scottish bankruptcy you must live in Scotland or have an established place of business in Scotland²⁰.

The body that administers personal bankruptcy in Scotland is the Accountant in Bankruptcy, which administers the process and records corporate insolvencies on behalf of the Scottish Government²¹. The Accountant in Bankruptcy can make a bankruptcy restrictions order lasting between two and five years⁹.

Bankruptcy restriction orders in Scotland are published in the Register of Insolvencies²². Your name and bankruptcy details are listed on the Register of Insolvencies for the duration of your bankruptcy²³.

Scottish bankruptcy can also end earlier than the standard term in some cases. If you are getting certain benefits, you may be able to pay less towards sequestration even if you are in work²⁴.

Will a bankruptcy restrictions order appear on a public register?

Yes. Your name appears on the public Insolvency (bankruptcy) Register²⁵, and bankruptcy restriction orders are also published in the Register of Insolvencies²². In Scotland, your name and bankruptcy details are listed on the Register of Insolvencies for the duration of your bankruptcy²³.

The register is public, which means lenders, employers and anyone else can search it. That is part of how the restrictions work: they are visible, so creditors can see who is subject to them. The same principle applies to debt relief orders, where your name is put on the Debt Relief Order Register, which can be found on the Insolvency Service website and viewed by the public²⁶.

How long does bankruptcy stay on my credit file?

Bankruptcy is normally listed on your credit reference file for six years²⁷.

Credit reference agencies may hold some information for longer. Some information may be held for longer, for example where a court has ordered that a bankruptcy restrictions order should last more than six years²⁸. That is the mechanism that links the length of the restrictions to the length of time the bankruptcy shows on your file.

The practical effect is that a bankruptcy restrictions order can keep your bankruptcy visible to lenders for far longer than the standard six years. Lenders decide whether to give you credit based on what they see, and a bankruptcy that is still on file is one of the things they take into account²⁹.

Where to get free debt advice

Free advice is available, and it is worth using before you make any decision about bankruptcy or a restrictions order. There are free advice services that can help³⁰, and you can get free advice from an approved money adviser at a registered charity³⁰.

The rules around debt relief orders have changed, and these changes could help people considering bankruptcy: a debt relief order can now be a cheaper option to full bankruptcy³¹. The same point is made elsewhere: the rules around debt relief orders have changed and could benefit those considering an insolvency solution like bankruptcy, and for some people a debt relief order will be a cheaper alternative to full bankruptcy²¹.

If you are setting up a debt management plan, get advice before setting up a plan with a provider; free and independent advice is available from organisations like Advice NI³². Under the newer buy now pay later rules, lenders must contact you, show you where to get free debt advice, and consider giving you longer to repay or removing extra fees³³.