The legal definition for bankruptcy, according to HMRC, is ‘a legal procedure for a business or individual who are not able to pay their debts.
A bankruptcy petition can be filed by either the debtor, which is more common, or on behalf of creditors – it is a different process – by an insolvency practitioner (IP) via the court.
If you have debts of £5,000 or more, you can only apply for bankruptcy online yourself and there is a fee to pay to HMRC, which is currently £680.
Alternatively, you can go through an IP; if you do, you are liable for the IP’s fees as well.An IP will assess all your debts and assets to get a better understanding of your financial position.
An adjudicator who works for the Insolvency Service will assess your case and decide if you are eligible for bankruptcy.
However, in most cases, there are insufficient assets of high enough value to pay creditors and therefore an arrangement is agreed with creditors that the debtor pays a monthly amount to the IP who then distributes the agreed amounts to the creditors.Anyone who declares bankruptcy will have to follow the legal procedure in accordance with the Insolvency Act 1986.