Bankruptcy

Bankruptcy is the formal insolvency procedure for individuals (not companies) under Part IX of the Insolvency Act 1986. It can be initiated by the debtor themselves (debtor's petition) or by a creditor owed at least £5,000 (creditor's petition). A bankruptcy order vests the debtor's property in a trustee in bankruptcy, who realises assets for distribution to creditors.

In practice

Bankruptcy typically lasts 12 months, after which the bankrupt is automatically discharged. During bankruptcy, the debtor is subject to restrictions: they cannot obtain credit of £500 or more without disclosing their status, act as a company director, or hold certain public offices. A creditor considering bankruptcy should weigh the costs (court fee plus petition deposit) against likely recovery, as bankruptcy wipes out the debt on discharge.