Bankruptcy normally lasts for 12 months. However this period could be extended if a Bankruptcy Restrictions Order (often known as a BRO) is issued.

Included in this article:

• The difference between a BRO and a BRU
• When is a Bankruptcy Restrictions Order issued?
• How will a BRO affect you?
• What if you get a windfall during a BRO?

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What is the difference between a BRO and a BRU?

Both a Bankruptcy Restrictions Order (BRO) and Bankruptcy Restrictions Undertaking (BRU) increase the length of certain restrictions that are placed upon you when you go Bankrupt. The extension can be between 2-15 years.

If the Official Receiver believes such an extension is warranted they will first give you the opportunity to accept it willingly. Given you agree you will be given a BRU.

If you do not accept the extension the OR will request a Court Hearing where a Judge will hear your case. Where they decide the extension is reasonable they will issue a BRO. This may last longer than if you had willingly accepted a BRU.

The OR can ask you to accept a BRU or apply for a BRO at any time during the 12 months of your bankruptcy after they have concluded their investigation into your affairs.

When is a Bankruptcy Restrictions Order issued?

You may be at risk of getting a BRU or BRO in the following circumstances:

Transactions at Undervalue: If you have given away or sold any of your belongings for less than their true value within 5 years of your bankruptcy start date.

Preferential Payments: If within 2 years of going bankrupt you have paid off any of your creditors in preference to others meaning they are able to avoid the bankruptcy process whether you knew you would go bankrupt or not.

Gambling Debts: You will not automatically get a BRO if you have gambling debts. This would only be a risk if a significant percentage of your debt is due to gambling or the debt itself is relatively large.

If you owe a significant portion of your debt to HMRC you may also be at risk of getting a BRO.

How will a BRO affect you?

For most people the affects of a Bankruptcy Restrictions Order are actually minimal. This is because the restrictions that are extended have little or no impact on normal everyday life.

A BRO extends the restriction that you are not allowed to borrow more than £500 from any creditor without letting them know you are bankrupt. However given your poor credit rating you will probably not notice this.

The extended restriction second is that you continue to be prevented from being a Director of a Limited Company. However if you have no intention of being a director this will not matter to you.

A BRO will not normally change the date of your discharge from Bankruptcy. The affect of a BRO is simply to extend certain restrictions of the Bankruptcy rather than the Bankruptcy itself.

What happens if you get a Windfall during a BRO?

If you receive a windfall while you are bankrupt it must be handed over to the Official receiver. This requirement ends once you are discharged.

Perhaps surprisingly the windfall rule is not extended by a Bankruptcy Restrictions Order. This is because a BRO does not actually extend the discharge of your Bankruptcy. It just extends the specific restrictions.

This is significant as it means that if you receive a windfall such as inheritance or a tax free lump sum from your pension while a BRO is in place as long as the windfall happens after the date you are discharged it is yours to keep.

If you are subject to an IPA and you receive a bonus payment or lump sum from your pension these windfalls can still be taken by the Official Receiver even after you are discharged.