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One step ahead: how fraud survives bankruptcy

By its very nature fraud is about dishonesty for personal gain. Dishonesty often continues beyond any judgment against the perpetrator, and fraudsters often have a number of tricks up their sleeve to evade payment of any judgment debt.


  • Fraudsters will try to stay one step ahead by hiding assets, avoiding enforcement and on occasion declaring themselves bankrupt
  • Fraud, however, survives bankruptcy. In other words, bankruptcy does not stop the ability to enforce a judgment directly after bankruptcy.
  • In practice, what does this mean for victims of fraud?

Recovering losses from fraudsters

One of the biggest challenges in pursuing a fraudster is actually recovering your loss. It is worth determining from the outset whether the fraudster has any assets against which a judgment could be enforced. In some circumstances, you may be able to apply for a freezing injunction over those assets in order to protect such assets from being dissipated.   Whilst a freezing injunction is not ‘security’ for a claimant it inevitably enables quicker and easier enforcement if the freezing injunction is continued after a claimant obtains judgment.

However, there may be circumstances where a freezing injunction is not attainable. Fraudsters will often go to great lengths to hide or disguise assets, perhaps putting them in the name of family members, or setting up trusts or companies as a front to house their personal funds, or having a company as their vehicle for personal financial transactions (which can be seen as something called a ‘repository’ for the fraudster’s assets). What follows is a game of cat and mouse whereby creditors try to identify assets belonging to the fraudster and unravel transactions designed to place assets out of the reach of creditors.


Fraudsters may choose to declare themselves bankrupt believing that their debts will be extinguished. This can be hugely frustrating for victims of fraud who are trying to recover their losses. Bankruptcy itself can be a lengthy and complicated process, and if the fraudster has many creditors, then it is unlikely that a judgment creditor will see any significant recovery.

Fraud survives bankruptcy

However, by virtue of section 281(3) of the Insolvency Act 1986 (the “Act”) fraud survives bankruptcy. Section 281(3) states:

“Discharge does not release the bankrupt from any bankruptcy debt which he incurred in respect of, or forbearance in respect of which was secured by means of, any fraud or fraudulent breach of trust to which he was a party.”

This means that a bankrupt’s debts that have come about as a result of fraud are not extinguished upon discharge of bankruptcy.

What does “fraud” in this context mean?

The 2021 case of Jones and Pyle Developments Ltd v Rymell [2021] EWHC 385 (Ch) confirms that “fraud” in s.281(3) of the Act refers to fraud in the sense of the tort of deceit at common law. In Jones and Pyle, the debt related to a judgment against the defendant for fraudulent misrepresentation.

It was held that such judgment fell within the meaning of s.281(3) of the Act and therefore, the defendant’s discharge from his bankruptcy did not discharge his liability for the judgment debt. In other words, the judgment debt survived the discharge of bankruptcy, and the claimant was able to enforce the judgment debt against him.

In this case, the time limit for enforcing the judgment debt had also lapsed, however, it was held that the facts of the case took it out of the ordinary and justified permission being given to the creditor to enforce the judgment. Such facts included the following:

  • The creditor had been isolated from the bankruptcy process
  • The bankruptcy had lasted for 16 months during which time the creditor could not in practice execute the judgment
  • Previously the debtor had had no assets with which to satisfy the debt, however he had now reached the age at which he could access his pension policies which did not form part of the bankrupt estate


In practice, this means that a creditor with a judgment of fraud can seek to enforce against the fraudster after his bankruptcy has been discharged, or indeed during his bankruptcy, against those assets falling outside of the bankruptcy estate, such as pensionsIn a follow up article, we shall explain how we have helped clients enforce against the pension funds of a bankrupt.

Author, Esther Phillips

Should you suspect that you are a victim of fraud or other wrongdoing and need advice, please do not hesitate to get in touch at  we will be happy to help.

Published on July 11, 2023

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