Bankruptcy in England and Wales

Bankruptcy in the United Kingdom is divided into separate local regimes for England and Wales, for Northern Ireland, and for Scotland. There is also a UK insolvency law which applies across the United Kingdom, since bankruptcy refers only to insolvency of individuals and partnerships. Other procedures, for example administration and liquidation, apply to insolvent companies. However, the term 'bankruptcy' is often used when referring to insolvent companies in the general media.

In England and Wales, bankruptcy is governed by Part IX of the Insolvency Act 1986 (as amended) and by the Insolvency Rules 1986 (as amended). The term bankruptcy applies only to individuals, not to companies or other legal entities.

An individual may be made bankrupt only by court order following the presentation of a bankruptcy petition. An individual may present his own petition on the ground that he is insolvent, i.e. unable to pay his debts. A creditor or creditors may also petition for a bankruptcy order to be made against an individual debtor.

Before a creditor presents a bankruptcy petition he must usually first serve on the debtor a statutory demand in one of the prescribed forms requiring the debtor to pay the sum claimed within 21 days of service of the demand. The debtor may apply to the court to set aside the demand on the basis that the debt is disputed on bona fide grounds or that he has a counterclaim, set off or cross-demand which equals or exceeds the amount of the debt claimed by the creditor. If the debtor fails to pay the sum claimed in the demand or to apply to set aside the demand or if his application to set aside the demand is dismissed by the court, the creditor may present a bankruptcy petition. Alternatively, a creditor may petition without first serving a demand if execution on a judgment has failed. In either case the debtor must owe the creditor at least £5000 and the claim must be for a liquidated sum, i.e. a fixed sum of money (not, for example, damages).

A bankruptcy petition must generally be served on the debtor personally, but if the creditor is unable to effect service, either because the debtor has evaded service or cannot be traced, the court may order substituted service, i.e. service by post or some other method which is likely to bring the demand to the debtor's attention.

At the hearing of the petition the court may make a bankruptcy order if the debt is undisputed or not capable of being disputed, dismiss the petition (for example if the debt has been paid) or adjourn the petition to give the debtor time to pay.

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