Bankruptcy

Written By Chris Andersen

Director & Licensed Insolvency Practitioner

August 20th, 2026

What is bankruptcy?

A creditor can present a bankruptcy petition against an individual where they are owed at least £5,000, or where several creditors join in a petition for debts totalling at least £5,000. Exactly £5,000 meets the threshold. Alternatively, an individual who cannot pay their debts can apply for their own bankruptcy. That is now an online application decided by an adjudicator at the Insolvency Service, not a petition presented to court. Once a bankruptcy order is made, the individual’s assets vest with the Trustee in Bankruptcy and these may include the bankrupt’s interest in the matrimonial home. The Trustee once appointed will deal with the realisation of the debtor’s assets and should sufficient funds be available, distribute these to creditors.

Statutory Demand

A statutory demand is a formal written demand for payment. There is no minimum debt: a creditor can serve a statutory demand for a debt below £5,000. The £5,000 threshold is a condition of the bankruptcy petition that may follow, not of the demand itself. A demand cannot usually be used for a debt more than six years old.

The demand must be in the prescribed form and must be served properly. Creditors usually instruct a process server to serve it personally, and whoever serves it makes a witness statement of service, which is later filed at court if a petition follows.

The individual will have a period of 21 days in which to respond to the statutory demand and has one of the following options:-

1. Do nothing
2. Pay the outstanding debt or negotiate a settlement time period to repay
3. Apply to have the statutory demand set aside and this will involve a court hearing at which the disputed debt will be heard.

Bankruptcy Petition

If a creditor has obtained either a judgement debt or the statutory demand does not result in the debt being repaid, then a bankruptcy petition will be presented against the debtor. Again, a solicitor will assist in this process to ensure that the forms are presented in accordance with the Insolvency Rules.

In presenting the petition, the court will need to be shown evidence that the statutory demand has been issued by filing a certificate or being provided with a statement from either the bailiff or sheriff to demonstrate that a judgement order was made and that they could not recover sufficient assets to satisfy the debt.

As at 18 August 2026 the fees for presenting a creditor’s bankruptcy petition are £1,500 for the petition deposit and £352 for the court fee, a total of £1,852 before any solicitor’s or process server’s costs. These fees change, so check the current figures on GOV.UK before you budget for a petition. Once the petition is lodged in court a hearing will be set and the bankruptcy petition will be served on the debtor.

Debtor’s Online Bankruptcy Application

An individual can apply for their own bankruptcy online. The application fee is £680 as at 18 August 2026, and it can be paid in instalments before the application is submitted. The application is decided by an adjudicator at the Insolvency Service rather than by a court, and a decision normally follows within 28 days. There is no longer a debtor’s petition to court. If you are applying for your own bankruptcy, you will need to provide details of your income and expenditure for example wage slips, pensions, council tax bills and credit card information.

Bankruptcy Order

A bankruptcy order can be made on either route: on a creditor’s petition heard by the court, or on the debtor’s own online application, which is decided by an adjudicator rather than a court. Whichever route it came by, what follows is the same.

Once a bankruptcy order is made, the case is initially handled by the Official Receiver who will become the Trustee in bankruptcy. The bankrupt will have a duty to cooperate with the Official Receiver and depending on the level of debt may be required to attend an interview with the Official Receiver.

The Official Receiver will circulate to the debtor a bankruptcy questionnaire which will need to be completed and returned. The booklet focuses on the bankrupt’s assets including details of the matrimonial home; any other assets; details of income and a list of creditors. It also asks whether you have disposed of any assets in recent years, and whether there have been any transactions with people connected to you. The periods that matter differ by type of transaction and are set out below.

Effects of Bankruptcy

Ordinarily, an individual will remain bankrupt for a period of one year until they receive discharge. There are various obligations placed on the bankrupt including co-operating with the Trustee, delivering all books and records and attending any set meetings. Failure to co-operate with the Trustee may lead to a suspension of discharge for a specific time or until the Bankrupt complies.

While bankrupt, an individual cannot act as a company director or take part in the promotion, formation or management of a company without the court’s permission. Credit is a different matter, and it is often described too absolutely.

Bankruptcy makes credit hard and expensive to get, but it is not a ban. What the law requires is disclosure: while undischarged, a bankrupt who obtains credit of £500 or more, alone or jointly, must tell the lender about the bankruptcy. The £500 can be reached through a series of smaller transactions with the same lender. Not disclosing is an offence under section 360 of the Insolvency Act 1986. Trading under a different name from the one they were made bankrupt in also has to be disclosed.

There are various bankruptcy offences which may lead to a Bankruptcy Restrictions Order or Undertaking lasting between 2 and 15 years, which extends these restrictions beyond discharge.

Meeting of Creditors

Based on the information gathered, the Official Receiver will decide whether it is appropriate to seek the appointment of an insolvency practitioner as trustee in place of the Official Receiver. Since the Insolvency (England and Wales) Rules 2016, creditor decisions are normally taken through a decision procedure such as correspondence or electronic voting, or by the deemed consent procedure, rather than by convening a physical meeting as a matter of course. Where the Official Receiver decides an insolvency practitioner should be appointed, the usual route is a creditors’ decision procedure. If that does not produce an appointment, the Official Receiver may ask the Secretary of State to appoint a trustee instead.

Creditors can insist on a physical meeting instead of a decision procedure, but the threshold is lower than is often assumed. A meeting must be held if it is requested by 10 per cent in value of the creditors, 10 per cent in number of the creditors, or simply 10 creditors, whichever comes first.

In a creditors’ decision procedure, a trustee is appointed by a majority in value of those creditors who vote, subject to the rules on connected creditors and to any objection to the decision.

The Bankrupt’s Estate

All property belonging to the bankrupt at the commencement of Bankruptcy vests in the Trustee on appointment. This includes all assets of the Bankrupt including their interest in the matrimonial home.

The trustee examines transactions made before the bankruptcy. There is no single five-year look-back; each type of claim has its own period, and they are quite different:

• Transactions at an undervalue – gifts, or transfers for significantly less than the asset was worth. Five years before the petition or application.
• Preferences – putting one creditor in a better position than they would otherwise have been in. Six months before the petition, extended to two years where the creditor was an associate.
• The insolvency condition – for anything more than two years back, the trustee must also show the individual was insolvent at the time or became insolvent as a result. That is presumed where the other party was an associate.
• Excessive pension contributions – a separate claim under section 342A of the Insolvency Act 1986.
• Transactions defrauding creditors – section 423, which has no fixed look-back period at all, but requires proof of a purpose of putting assets beyond creditors’ reach.

Which of these applies, and therefore how far back the trustee can go, depends on what was done, when, and with whom.

In addition, the bankrupt has a duty to report to the Trustee any after acquired property and any windfalls (e.g. national lottery) which may be received following bankruptcy. There could also be a potential Income Payments Arrangement or Order (IPO/IPA) which may result in the bankrupt making contributions into the estate for a period of up to 3 years post-bankruptcy.

There are however various assets which are excluded from the estate which may include:-

1. Tools, books, vehicles which are necessary for the bankrupt’s trade
2. Household effects reasonably necessary for basic domestic needs
3. Approved HMRC pensions

Matrimonial Home

The Trustee has a period of three years from commencement of bankruptcy to realise the bankrupt’s interest in the matrimonial home. This is obviously a sensitive matter as there are other parties affected by this process e.g. spouse, civil partner, children and former spouse.

The first year matters, but not as a bar on the trustee. Under section 335A of the Insolvency Act 1986 the court weighs the creditors’ interests against the needs of the bankrupt’s spouse, civil partner or former partner and any children living in the home. Where the trustee applies for an order for sale more than a year after the estate vested, the court must assume that the creditors’ interests outweigh everything else, unless the circumstances are exceptional. So the first year is the period in which those competing needs carry the most weight, not a period in which nothing can happen.

How much equity the estate actually has depends on how the home is held: joint names, tenants in common, the bankrupt’s sole name, or the sole name of the non-bankrupt spouse. There is a large body of case law on all of this, and the outcome turns on the facts.

In most cases, the spouse will be approached first in order to buy the bankrupt’s share of the matrimonial home and failing that a voluntary sale of the property may be sought. There may be occasions when an application to court will need to be made for repossession and sale and the court will need to consider the rights of occupation by third parties.

Finally, there are exceptional circumstances when the Trustee may be unable to realise the Bankrupt’s interest for example, elderly mother, unforeseen illnesses, adaptation of the house for disability and these will need to be proven to the court.

Discharge of Bankruptcy

The bankrupt is automatically discharged from bankruptcy after a period of one year provided there has been no application by the Trustee for a suspension. On discharge, the assets remain vested with the Trustee and the Trustee will remain in office.

Annulment

The Bankrupt might wish to seek an annulment of the Bankruptcy Order on one of the following bases:-

1. That the Order should never have been made and they were in fact solvent.
2. That the bankruptcy debts can be paid in full.
3. That creditors approve the basis of an Individual Voluntary Arrangement (IVA) as it will result in a better outcome for creditors as opposed to remaining in Bankruptcy.

Closing the bankruptcy: the trustee’s final report

Once the assets have been realised and any distributions paid, the trustee sends creditors a final report with a final receipts and payments account and a notice that they intend to seek release. Final meetings of creditors were abolished by the Insolvency (England and Wales) Rules 2016.