Bankruptcy in the United Kingdom

There is no single law on bankruptcy in the United Kingdom with there being one system for England and Wales, one for Northern Ireland and one for Scotland.

In the United Kingdom, bankruptcy refers only to insolvency of individuals and partnerships. Other procedures, for example liquidation, apply to insolvent companies.

Bankruptcy in England and Wales

In England and Wales the majority of personal insolvencies are “bankruptcies". The remainder are Individual Voluntary Arrangements or IVAs, which are arrangements between the debtor and his or her creditors for the payment of the debts on different terms: for example by instalments, or over a period of time.

In bankruptcy, an indebted individual sees his debts forgiven in return for surrendering his assets (and sometimes a limited proportion of his income). He is allowed however to retain so-called “exempt” assets such as tools-of-trade and basic necessities and the generosity of this exemption level has received much attention in the USA where it varies among states, potentially affecting bankruptcy filing rates.

Bankruptcy is handled by a Trustee in bankruptcy who must be either the Official Receiver (a civil servant) or a licensed insolvency practitioner.

Following the introduction of the Enterprise Act 2002's bankruptcy provisions in April 2004, an England & Wales bankruptcy will now normally last no longer than 12 months and may be less, if the Official Receiver files in Court a certificate that his investigations are complete. However, in cases where the bankrupt is considered particularly culpable for his or her insolvency, the bankruptcy can last for up to 15 years, although such orders are rare.

Bankruptcy in Scotland

Bankruptcy in Scotland is called Sequestration and the organisation responsible for administering these processes is the [http://www.aib.gov.uk/ Accountant in Bankruptcy] . There are alternatives to bankruptcy that can help individuals deal with debt problems, these include a scheme run by the Scottish Government called the [http://www.aib.gov.uk/MainNav/Services/das/Q/editmode/on/forceupdate/on Debt Arrangement Scheme] . Other options include [http://www.aib.gov.uk/MainNav/Services/ptd Trust Deeds] , these are types of agreement arranged between the individual in debt and his or her creditors. There are organisations that give free professional advice to individuals experiencing problems with debt, these include [http://www.adviceguide.org.uk/scotland/life/debt/help_with_debt_scotland.htm Citizens Advice Scotland] .

Insolvency Statistics for England and Wales

* Source: The Insolvency Service [http://www.insolvency.gov.uk/otherinformation/statistics/historicdata/HDmenu.htm]

Rise in Bankruptcy Rates

Some claim that the Enterprise Act threatens massively to increase the number of bankruptcy cases. Indeed, bankruptcies have risen considerably since the change. However they were already on an upward trend, and the rise is mirrored in Scotland, where there has been no legislation change.

A popular alternative explanation for the run-up in UK insolvencies is "destigmatisation" - people, it is said, are becoming less ashamed of going bankrupt. This is hard to prove, but some evidence is provided by figures showing that, increasingly, bankruptcy petitions are filed by debtors themselves, rather than their creditors.

The UK average household debt-to-income ratio has risen substantially in recent years, leading some to attribute the rise in insolvencies to excessive borrowing. However, the ratio of debt repayment costs to income has remained quite low, weakening this claim. Moreover, the rise in borrowing could itself be a reflection of a lower "fear" of bankruptcy - the destigmatisation effect again.

External links

* [http://www.bankofengland.co.uk/publications/quarterlybulletin/qb040401.pdf British Household Indebtedness and Financial Stress: A Household -Level Picture] [PDF] Quarterly Bulletin, Personal Sector Articles, Winter 2004 (Report for Bank of England)
* [http://www.insolvencyhelpline.co.uk/ Website of the UK Insolvency Helpline in the UK]
* [http://nationaldebtline.co.uk/england_wales/factsheet.php?page=01_bankruptcy National Debtline Bankruptcy Information Document]
* [http://www.arbiummoney.com/bankruptcy/bankruptcyservices/downloads.html Useful Insolvency Self Help Documents]