PART 8

March 2014

DEBTS NOT RELEASED ON DISCHARGE (BANKRUPTCY ONLY) 

40.176 Debts not released on discharge - general

The bankrupt’s liability to repay bankruptcy debts (except out of assets of the bankruptcy) is released on his/her discharge from bankruptcy [note 1].

Certain categories of debts are however not released on discharge (see paragraph 40.177).  In effect, this means that the bankrupt becomes liable, once again, for the debt on his/her discharge from bankruptcy.

40.177 Categories of debts not released on discharge

The following categories of debts are not released on discharge: 

• A debt incurred in respect of, or the payment of which was avoided by, any fraud or fraudulent breach of trust to which the bankrupt was a party (see paragraph 40.178). 
• Any liability in respect of a fine, or a security entered into before a court, including one imposed for a public revenue offence (see paragraph 40.179). 
• A liability in respect of a confiscation order (see paragraph 40.180). 
• A liability to pay damages for negligence, nuisance or breach of a statutory, contractual or other duty, or to pay damages under consumer protection law [note 2] in respect of personal injuries (see paragraph 40.181). 
• A liability arising under any order made in family proceedings or under a maintenance calculation made under the child support legislation [note 3] (see paragraph 40.182). 
• An obligation in respect of a budgeting loan or a crisis loan from the Social Fund where the bankruptcy petition was presented on or after 19 March 2012 (see paragraph 40.183). 
• A debt due in relation to a student loan (see paragraph 40.184). 
• Generally, any non-provable debt (see paragraph 40.81) (which includes many of the aforesaid categories).

40.178 Debt for fraud not released on discharge

A debt incurred by fraud is not released on discharge [note 4].

It has been held that fraud in the context of these provisions has simply to be proved in the common law sense, and is intended to refer to debts tainted by actual dishonesty [note 5], or where the act (breach of trust, for example) was both deliberate and involving dishonesty [note 6].

A fraud would not be present simply on the basis of a foreign judgment on an action for fraud [note 7] nor would an obligation to repay money obtained under undue influence automatically be fraud for these purposes [note 8].

The most common fraudulently incurred debt encountered by the official receiver is likely to be a payment of social security benefits where the benefits were obtained fraudulently.

40.179 A liability in respect of a fine not released on discharge

A liability in relation to a fine is not released on discharge.  For the purposes of these provisions, ‘fine’ has the same meaning as in relation to a fine as a non-provable debt (see paragraph 40.84) [note 9].

A liability under a recognisance (which is a security entered into before a court with a condition to perform some act required by law) is similarly not released on discharge [note 10].

A penalty imposed for an offence relating to public finance is not released without the consent of the Treasury [note 11].

40.180 A liability in respect of a confiscation order not released on discharge

A liability under a confiscation order granted under the following pieces of legislation is not released on discharge [note 12] [note 13]: 

• Proceeds of Crime Act 2002 [note 14]
• Drug Trafficking Offences Act 1986 [note 15]
• Criminal Justice (Scotland) Act 1987 [note 16]
• Criminal Justice Act 1988 [note 17]

Such liabilities are also not provable debts (see paragraph 40.90).

See Chapter 9A, Part 3 for further guidance on confiscation orders made under the Proceeds of Crime Act 2002.

40.181 A liability in respect of personal damages not released on discharge

The liability of a bankrupt to pay damages to a third party in respect of a personal injury claim is a provable debt in the bankruptcy but the bankrupt is not released from the debt on discharge unless the court so directs [note 18].

40.182 A liability in respect of family proceedings not released on discharge

A liability in relation to an order arising under family proceedings is not released on discharge unless the court so directs [note 19]. 

For the purposes of these provisions, ‘family proceedings’ can be taken as having the same meaning as in relation to a such liabilities as a non-provable debt (see paragraph 40.85) and also include maintenance proceedings under the child support legislation [note 20].

40.183 A liability in respect of a social fund loan not released on discharge

An obligation in respect of a budgeting loan or a crisis loan from the Social Fund (see paragraph 40.91) where the bankruptcy petition was presented on or after 19 March 2012 will not be released on discharge [note 21] [note 22] [note 23].

40.184 A debt in respect of a student loan not released on discharge

A debt in respect of a student loan (see paragraph 40.92) is not released on discharge where the bankruptcy order was made on or after 1 September 2004.  This is provided for in legislation [note 24] other than the insolvency legislation.

[Back to Part 7 – Right of set-off] [On to Part 9 – Creditors’ rights]