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This briefing paper considers the bankruptcy framework in England and Wales. The bankruptcy process is slightly different if the debtor lives in Northern Ireland, and Scotland has its own separate bankruptcy procedure known as sequestration.

An individual is insolvent when they cannot pay their debts “as and when they fall due”. Bankruptcy is one way for individuals to deal with debts they cannot pay (there are other options such as informal agreements, Individual Voluntary Arrangements (IVAs) and Debt Relief Orders).  A company cannot be made bankrupt, only individuals can.

A bankruptcy petition may be presented to the court by one or more creditors who are owed £5,000 or more by the debtor and that amount is unsecured (known as a ‘creditor’s petition’). Alternatively, a debtor may petition for their own bankruptcy using an online portal, the application is determined by an adjudicator acting for the Insolvency Service.

Once a bankruptcy order has been made, an official receiver (a government official and 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’. 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 the order.

The function of the official receiver or trustee is to collect in and sell the bankrupt’s assets and to distribute the proceeds to 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 their debts.

On 5 July 2022, the Insolvency Service launched a call for evidence seeking stakeholders’ views on the personal insolvency framework and whether it still serves the needs of debtors and creditors. The consultation closes on 24 October 2022.  In addition to summarising the bankruptcy framework in England and Wales, this briefing paper also considers this call for evidence.  

Anyone considering bankruptcy should seek proper debt advice based on a full appraisal of their circumstances.  

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