An early discharge from bankruptcy is no longer possible thanks to an amendment made to insolvency legislation.
Section 279(2) of the Insolvency Act 1986 used to allow for a bankrupt to be discharged “early” and the legislative change means that the earliest a bankrupt can be discharged is the 12 month anniversary of the making of the bankruptcy order. Under the changes, for anyone made bankrupt after 1 October 2013, they will be discharged after 12 months as long as they do not have their discharge suspended. For all other cases where bankruptcy orders were made prior to 1 October, bankrupts may have been entitled to an earlier discharge.
Early discharge from bankruptcy was introduced as part of a raft of amendments to bankruptcy laws and rules introduced under the Enterprise Act 2002. The new act came into effect in April 2004. Prior to the changes made under the Enterprise Act 2002, the standard period of bankruptcy was 3 years for most bankrupts. The Enterprise Act 2002 changed the standard period to just one year but allowing an even earlier discharge in situations where the Official Receiver was able to complete his enquiries into the bankrupt’s affairs sooner.
Many of the amendments made at the time were seen to make bankruptcy a much easier, more “user-friendly” process of dealing with personal debts that could not be dealt with in any other way. Perhaps not surprisingly the number of people filing their own debtor’s petition rose significantly in the years following the amendments. The possibility of being free from debt in just twelve months or even less was an attractive lure for a lot of people.
The rationale behind the changes made at the time was that individuals should not see bankruptcy as a punishment in genuine cases where they had got into financial difficulties and were unable to repay their debts. People would be able to be debt-free in a year or less and start afresh. The period of bankruptcy was to be seen as a brief period of rehabilitation, to de-stigmatise the bankruptcy process and encourage enterprise.
So why, you might ask, has early discharge been repealed? The Insolvency Service entered into a consultative process, as part of which it considered the effects of early discharge from bankruptcy. The process resulted in the Insolvency Service concluding that the intentions behind reducing the period of bankruptcy to less than a year were not being achieved. Bankruptcy has continued to be seen to have some element of stigma in the eyes of businesses and banks who still eye bankrupts with some degree of caution. Banks, for example, are still reluctant to provide a full range of banking facilities to people who have been made bankrupt even after they have received their discharge.
Whilst discharge from bankruptcy relieves a bankrupt of many of the obligations that bankruptcy places upon him, he would still be required to continue to make payments from income under an Income Payments Order (IPO) or Income Payments Agreement (IPA) for up to three years. Furthermore, if there are assets remaining to be dealt with by the Official Receiver or trustee in bankruptcy he is still required to cooperate in dealing with their realisation.
Once a bankrupt has been discharged, he may if he so wishes, obtain a Certificate of Discharge from the court in which he was made bankrupt, upon payment of a fee which is currently £75.
Anyone considering going bankrupt should take professional advice. Please telephone 0800 612 7265 or complete our enquiry form for a quick response.