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Insolvency Law

Expert guidance on all aspects of corporate and personal insolvency

09 OCT 2009

Office of Fair Trading Consultation on Bankruptcy Annulment and Consumer Credit

The Office of Fair Trading (OFT) has issued a consultation document to seek views on Bankruptcy Annulment and Consumer Credit. The OFT note:

"The OFT has a duty to protect the interests of consumers by ensuring the fitness of those holding or applying for consumer credit licences. The OFT also has a duty to monitor social and commercial developments relating to the provision of credit and related activities.

The OFT is monitoring the lending and broking of secured loans to consumers that have recently gone bankrupt where the purpose of the loan is to annul the bankruptcy.


Where an individual has become bankrupt, the Insolvency Act 1986 allows the individual to apply to court to have the bankruptcy 'annulled' in certain circumstances. One of the ways in which a bankruptcy may be annulled, subject to the discretion of the courts, is where the bankruptcy debts and expenses of the bankruptcy have been paid off.

There is a small but growing market in the UK of lenders and brokers that approach recently bankrupted homeowners offering short-term loans secured on the property in order to annul the bankruptcy before arranging for a remortgage.

A short-term loan is used to repay all outstanding unsecured debts and other costs and an application is made to annul the bankruptcy. Once the bankruptcy is annulled, a remortgage is entered into in order to repay the short-term loan."

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