Discharge from Bankruptcy

In this blog, our Insolvency & Restructuring Solicitors set out the process and effect of being discharged from bankruptcy.

Bankruptcy is a formal process by means of which individuals (commonly referred to as ‘debtors’) can respond to and deal with debts that they simply cannot pay, or it can be a means by which creditors seek to recover debts owed to them by a debtor. 

Bankruptcy in England and Wales does not apply to companies or partnerships.

The bankruptcy process ensures that a debtor’s assets are shared amongst that person’s creditors and, with some restrictions, allows the debtor to make a fresh start free from their debts, usually a year after the bankruptcy order is made.

Discharge from bankruptcy is a statutory process that relieves a bankrupt from the restrictions and disabilities of bankruptcy and most of their bankruptcy debts.

The bankrupt does not have to do anything to obtain discharge as it is usually automatic.  There is no formal application or court hearing for discharge.  Usually, on the first anniversary of the bankruptcy order, the debtor is simply discharged from their bankruptcy.    

When a bankruptcy order is made, the Official Receiver is appointed to be the debtor’s trustee in bankruptcy.  The Official Receiver will remain in that role unless a private sector licensed insolvency practitioner is appointed to take over, usually at the behest of the bankrupt’s creditors. 

As the debtor’s bankruptcy estate exists in perpetuity, it remains vested in their trustee in bankruptcy following discharge until the trustee is released from office (when the administration of the bankruptcy estate reverts to the Official Receiver). 

We set out in our previous blog the statutory duties owed by debtors once they are made bankrupt.  It is important to note that a bankrupt’s duty to co-operate with their trustee extends beyond the time of their discharge. 

When a debtor is made bankrupt, a bankruptcy notice will be registered against the title of any property that the debtor owns.  When a debtor is discharged from their bankruptcy, the bankruptcy notice will not be removed unless there is a specific court order directing the removal of the notice.  If a discharged bankrupt obtains such a court order then an application can be made to the Land Registry for removal of the bankruptcy notice. 

However, unlike an order annulling or rescinding a bankruptcy order, the removal of any bankruptcy notice has no effect on the vesting of property.  Consequently, any land or charge (whether registered or unregistered) which has vested in the trustee in bankruptcy will remain so vested and not re-vest in the discharged bankrupt.  Therefore any bankruptcy notice registered against the title to the property will remain on the register notwithstanding the debtor’s discharge from bankruptcy. 

If the bankrupt has failed, or is failing, to comply with their obligations under the Insolvency Act 1986 and the Insolvency (England and Wales) Rules 2016, the Official Receiver or the debtor’s private sector trustee in bankruptcy may apply to Court before the bankrupt is due to be automatically discharged to suspend the bankrupt’s discharge from bankruptcy for either a fixed period or until the fulfilment of a specified condition. 

Suspension is penal in nature.  Therefore, the Court must be satisfied that the bankrupt has failed or is failing to comply with their obligations before considering how it will exercise its discretion to make an order suspending their discharge from bankruptcy. 

Suspending automatic discharge is a matter of discretion for the Court. The Court should consider whether it is in the public interest and in the interests of their creditors, bearing in mind the debtor's failure to comply with their statutory obligations, to keep the debtor subject to the restrictions that affect an undischarged bankrupt.