Bankruptcy Laws in the UK

The idea behind UK bankruptcy law is to give “honest” debtors a clean start. The process relieves you of most of your debts and lets you to repay creditors as far as possible via the sale of existing assets. Some assets are excluded such as tools of a trade and a solvent spouse’s equity in your house. As a process, bankruptcy is available only to individuals and partnerships. Failing companies and other corporations go into liquidation or administration instead.

A more detailed outline of the process of bankruptcy is given elsewhere on this site. Many people have an outdated idea of what bankruptcy laws say, however, because there were major changes made to bankruptcy in 2004, as set out in the Enterprise Act of 2002. This page highlights two important changes.

Remember that if you need advice on your own particular circumstances, and on how bankruptcy law would apply to you, ClearStart is able to help you because there are some debt solutions available like an IVA (Individual Voluntary Arrangement) which could be better alternative to Bankruptcy.

Releasing equity in a property

When you are made bankrupt, the Trustee will often try and sell your main residence, releasing any equity to help repay creditors. Before the Enterprise Act 2002, a bankruptcy Trustee was given an indefinite period of time to do this. Now a trustee has just three years – if your primary residence has not been sold in that time, the property once again becomes your property.

Duration of the bankruptcy

The changes to the Enterprise Act 2002 mean that the duration of bankruptcy has been reduced. Previous rules meant that bankrupts would automatically be discharged after two to three years. Now bankrupts are usually discharged after one year.

Further reading
Bankruptcy | Bankruptcy process | UK Bankruptcy Law | Avoid Bankruptcy | Effects of Bankruptcy | IVA an Alternative to Bankruptcy | Disadvantages of Bankruptcy | Bankruptcy FAQs