Bankruptcy in the United Kingdom

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For bankrupcty in Scotland see Sequestration

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.

1 Bankruptcy Law
2 Why are bankruptcies soaring?
3 Insolvency figures
4 External links

[edit] Bankruptcy Law

There are two main personal insolvency regimes in the UK: one for England and Wales and another for Scotland. 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. These two forms of insolvency have close equivalents in Scotland, where bankruptcies are known as sequestrations and the equivalent of IVAs are Protected Trust Deeds, or PTDs.

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.

[edit] Why are bankruptcies soaring?

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.

[edit] Insolvency figures

Graph of Insolvency figures, 1997-2005

Type	1997	1998	1999	2000	2001	2002	2003	2004	2005 (p)
Bankruptcy Orders	19,892	19,647	21,611	21,550	23,477	24,292	28,021	35,898	47,287
Individual Voluntary Arrangements	4,549	4,902	7,195	7,978	6,298	6,295	7,583	10,752	20,293
Total	24,441	24,549	28,806	29,528	29,775	30,587	35,604	46,650	67,580