Bankruptcy

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Related Topics:
  1. Winding-up
  2. Bankruptcy
  3. Statutory Demand
  4. High Court Enforcement Officer
  5. Bailiff
  6. Default Judgment
  7. County Court Judgment (CCJ)
  8. Letter Before Action (LBA)
  9. Garnishment exemption limit
  10. Accounts receivable management
  11. Attachment and assignment order
  12. Inability to pay
  13. Risk managament
  14. Inkassovollmacht
  15. Cedent
  16. Cash flow
  17. Third-party debtor
  18. Legal aid in civil proceedings
  19. Statement of defence
  20. Third-party debtor declaration
  21. OPOS
  22. Injunction
  23. Claim amount
  24. Assignment
  25. Direct debit return
  26. Payment extension
  27. Insolvency administrator
  28. Retention of title
  29. Trustee
  30. Consumer insolvency
  31. Standard insolvency
  32. Foreclosure
  33. Payment term
  34. Payment plan
  35. B2C
  36. B2B
  37. Base interest rate
  38. Credit Score
  39. Liquidity
  40. Affidavit
  41. Credit insurance
  42. Factoring
  43. Objection
  44. Foreclosure
  45. Default of payment
  46. SCHUFA
  47. Enforcement Officer
  48. Opposition
  49. Dunning notice
  50. Statute of limitations
Table of contents:
  1. What is Bankruptcy under UK law?
  2. Who can be subject to this procedure?
  3. When does this personal insolvency process occur in the legal system?
  4. How is the process formally initiated and administered?
  5. What are the legal effects on the debtor?
  6. How does this procedure affect creditors?
  7. How does this differ from a Debt Relief Order (DRO) or an Individual Voluntary Arrangement (IVA)?

What is Bankruptcy under UK law?

Bankruptcy is a formal personal insolvency procedure under UK law. It applies to individuals who are unable to meet their financial obligations. The process is governed by statutory rules and forms part of the insolvency system in England and Wales.

This court-based procedure creates a defined legal status for the person concerned. Once a bankruptcy order is made, the individual’s financial affairs are handled within a structured legal framework.

It applies only to natural persons. Companies cannot use this process. When a company becomes insolvent, a different legal route is used, usually known as winding-up.

The procedure therefore belongs to personal insolvency law. It is separate from corporate insolvency and separate from ordinary civil claims.

Who can be subject to this procedure?

The process applies to individuals. This includes:

  • private persons

  • sole traders

  • self-employed individuals

A person does not need to operate a business. It can relate to private debts as well as business debts of a sole trader.

Limited companies are not covered. If a company is insolvent, corporate insolvency rules apply instead.

The legal route depends on the status of the debtor:

  • Individuals → personal insolvency procedure

  • Companies → corporate winding-up

The framework is determined by the legal nature of the debtor.

This procedure takes place at a defined stage within the wider legal system. It follows earlier financial and legal steps.

Before entering the insolvency framework, there may have been:

  • unpaid debts

  • debt recovery efforts

  • civil court claims

  • enforcement actions

When the matter moves beyond individual enforcement and into formal insolvency law, this process becomes relevant.

In structural terms, it belongs to the insolvency phase. It is separate from:

It represents a distinct legal stage governed by insolvency legislation.

How is the process formally initiated and administered?

The procedure begins with a formal legal application. It can be started either:

  • by the debtor applying directly, or

  • by a creditor applying to the court under insolvency rules

If the legal conditions are satisfied, the court makes an order placing the individual into personal insolvency.

After the order is issued, control over certain assets passes into the insolvency estate. A trustee is appointed. This may be an Official Receiver or a licensed insolvency practitioner.

The trustee is responsible for:

  • identifying assets

  • managing those assets

  • distributing funds according to statutory rules

The court oversees the legal status, while the trustee handles administration under the insolvency framework.

Once the court order is made, the individual has the legal status of a bankrupt person.

From that moment, assets that fall within the insolvency estate are managed by the trustee. The individual no longer has full control over certain financial matters.

The legal framework defines:

  • which assets are included

  • how income may be treated

  • how obligations are handled

The person must cooperate with the trustee and provide information about finances and property.

This legal status continues until discharge occurs in accordance with statutory rules.

How does this procedure affect creditors?

The process creates a collective insolvency structure. Creditors no longer pursue claims individually.

Once the order is in place, all claims are handled within the insolvency system. Separate enforcement steps are replaced by the collective framework.

Creditors may:

  • submit proof of their claims

  • be recorded in the insolvency estate

  • receive distributions based on statutory priority rules

The trustee gathers available assets and distributes funds according to insolvency legislation.

The system treats creditors as part of one unified legal process.

How does this differ from a Debt Relief Order (DRO) or an Individual Voluntary Arrangement (IVA)?

This court-based insolvency process differs from other personal insolvency tools.

A Debt Relief Order (DRO) is designed for individuals with low income and limited assets. It operates under insolvency law but follows a different administrative route.

An Individual Voluntary Arrangement (IVA) is a formal agreement between a debtor and creditors. It is supervised by an insolvency practitioner and approved under statutory rules. It does not create the same legal status as a court-ordered insolvency.

The structural differences can be summarised as:

  • Court-based personal insolvency → trustee appointed by court

  • DRO → administrative relief for qualifying individuals

  • IVA → legally binding agreement within insolvency law

All belong to UK insolvency legislation, but they follow different legal structures.