Does bankruptcy last longer if you have HMRC debt
- 07 Jun 2022
You may have heard that if you owe money to HMRC, your bankruptcy will last longer than 12 months. This is not the case. However, some of the restrictions placed upon you could be extended past one year.
Included in this article:
- Will your bankruptcy last longer if you owe money to HMRC?
- What affect does a BRU really have?
- Can you leave tax debt out to avoid it lasting longer?
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Will your bankruptcy last longer if you owe money to HMRC?
Bankruptcy normally lasts 12 months. After 1 year you are discharged automatically. This time period would only ever be extended if you don’t co-operate with the official receiver.
That said, if you have HMRC debt, you may be asked to accept a BRU (Bankruptcy Restrictions Undertaking).
A BRU doesn’t change the date of your discharge. This will still be 12 months from the start date. However it will mean that some of the restrictions put upon you will last longer. The most significant of these are that you are unable to be a company director while it is in place. In addition you are not allowed to borrow more than £500 without telling the lender you have a BRU.
In the majority of cases, the length of the extension will often be 3-4 years. The maximum length of a BRU is 15 years. However, longer extensions are normally only given in rare cases where the official receiver believes fraud may have been committed.
A BRU is an extension that you accept willingly. If you challenge it, the Official Receiver will ask the Court to force the extension. If granted, it is then known as a BRO (Bankruptcy Restrictions Order).
What affect does a BRU really have?
Generally speaking, the affect of getting a BRU is minimal. The fact that you are unable to be a company director for an extra few years is not a problem. Most people will never want to be a company director anyway.
You can still work for a company as an employee. If you really want to run a business, you can do so on a self employed basis if you wish.
The fact that you can’t borrow will make little or no difference. Your ability to get credit will continue to be restricted for a further 5 years anyway due to your poor credit rating. The record of your bankruptcy remains on your credit file for a total of 6 years regardless of whether you have a BRU or not.
A BRU does not affect subsequent windfalls. If you inherit or get compensation after you are discharged this is yours to keep despite the BRU.
Even though getting a BRU means some of the restrictions of bankruptcy last longer, most people are likely to be totally unaffected by this.
Can you leave tax debt out of bankruptcy to avoid it lasting longer?
If you don’t want your bankruptcy to last longer, you might consider leaving out the debt you owe to HMRC. Unfortunately this is not possible.
Tax debts are categorised as unsecured. This means that they are automatically included. Even missing them off the list of your debts in your application will make no difference.
HMRC will be notified by the Official Receiver (OR) that you are bankrupt and will inform them of any debt you owe them. As a result, the OR will have to consider whether to issue you with a BRU. If they do some of the restrictions will last longer as a result.
However, as previously highlighted above, the fact that you owe money to HMRC does not automatically mean your bankruptcy will last longer. If the amount you owe is relatively small the OR will be unlikely to take any action at all. Where they do, in the vast majority of cases, the extension will only be for 3-4 years and will have little affect either way.
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