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Published Monday, April 4, 2016

This Commons briefing paper provides a brief outline of bankruptcy procedures in England and Wales.

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An individual is insolvent when they cannot pay their debts “as and when they fall due”. In this situation, they may be made bankrupt (although there are alternatives to bankruptcy such as informal agreements, Individual Voluntary Arrangements and Debt Relief Orders). A company cannot be made bankrupt, only individuals can. The correct insolvency term and procedure for a company insolvency equivalent to bankruptcy is liquidation.

Currently, a bankruptcy petition may be presented to the court either by the debtor himself (a debtor’s petition) or by one or more creditors who are currently owed £5,000 or more by the debtor and that amount is unsecured (a creditors’ petition). Once a bankruptcy order is made by the court, an official receiver (a government official who is an officer of the court) will be appointed to manage the bankrupt’s affairs unless there are sufficient assets to appoint a private sector insolvency practitioner as ‘trustee in bankruptcy’ (‘the trustee’). As at the date of the order, the bankrupt’s estate vests in either the official receiver or the trustee. The bankrupt’s estate essentially consists of all the property which belongs to or is vested in the bankrupt at the commencement of his/her bankruptcy. The function of the official receiver or trustee is to collect in and sell the bankrupt's assets and to make payments to the creditors. The trustee's professional costs are paid out of the bankrupt's estate. Automatic discharge from bankruptcy usually occurs after one year. Following discharge, the bankrupt is no longer liable for the balance of his/her debts.

This Commons briefing paper provides an outline of bankruptcy procedures in England and Wales (Scotland has a separate bankruptcy procedure known as sequestration). It should be emphasised that anyone made bankrupt (or considering bankruptcy) should seek proper legal advice based on a full appraisal of the facts of their case.


Commons Briefing papers SN07097

Author: Lorraine Conway

Topic: Insolvency

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