21 Jul 2012

Taming Wild Debtors

Taming Wild Debtors

Bankruptcy Restriction Orders (or BROs) can curtail the behaviour of bankrupts post discharge, Jane Gordon, Senior Solicitor, looks at the sanctions and penalties that be imposed.

Bankruptcy Restriction Orders (or BROs) can curtail the behaviour of bankrupts post discharge, Jane Gordon, Senior Solicitor, looks at the sanctions and penalties that be imposed.

In late April, a high profile case arose involving a debtor who spent hundreds of thousands of pounds travelling, drinking and partying. Thereafter the Debtor was handed the longest Bankruptcy Restriction Order (BRO) ever imposed by a Scottish Court.

Bankruptcy Restriction Orders are designed as a deterrent, and punishment, for debtors who conduct themselves in an unacceptable way. For a BRO to be sought the person’s conduct must have, in either the course of their bankruptcy or the period leading up to it, been dishonest, negligent or uncooperative. If that is the case, the Accountant in Bankruptcy (AIB) can apply to the Court to impose a BRO upon the debtor.

If a debtor behaves badly while bankrupt, the length of bankruptcy can be extended as long as the Court sees fit. These orders dramatically impact upon the Debtor’s lifestyle. Debtors can be banned from certain employment opportunities or from certain types of credit for between 2 and 15 years.

The most significant aspect of a BRO is that if a Debtor breaches the Order they can be guilty of a Criminal Offence which can lead to jail or at least a large fine. These Orders are very attractive as deterrents and are useful in encouraging a Debtor to address their arrears responsibly. This is evidenced by the fact that since the legislation came into force in 2007 the number of BROs has steadily increased.

At present the minimum amount of debt required for a person to be declared bankrupt against their will is £3,000. The process of Bankruptcy Restriction was introduced in April 2008 and is governed by legislation whose scope is gradually being expanded and powers strengthened.

Arguably, the most interesting development is that the new law awards sole jurisdiction in all bankruptcy cases to Sheriff Courts, meaning that the Court of Session will no longer deal with any bankruptcy cases. This will make the Court process cheaper but may also mean that it will take longer to get a case before a Sheriff as all the cases will be concentrated in one court.

BROs seem to be having the effect of encouraging debtors to act responsibly and as a result this should improve lender confidence. However, the orders are still being defined and adjusted by evolving legislation and the final picture is as yet unfinished as to how and when they will be enforced.

Jane Gordon, Senior Solicitor


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