Bankrupt

A person is declared bankrupt when it is considered by a court that they cannot repay their debts. The individual’s assets are then sold and/or distributed among their creditors to repay the money they owe. A person can apply to become bankrupt, but more commonly, the process is initiated by a creditor. In the UK, only an individual can be declared bankrupt – the status does not apply to companies. Although the two can be parts of the same process, bankruptcy and insolvency are not synonyms, and the latter applies to companies only. Once a person is made bankrupt, they must abide by several responsibilities, including the obligation to tell anyone who offers to lend them £500 or more that they are bankrupt. They are also prevented from managing, creating, or promoting a business, or acting as a company director without permission from the court, and are not allowed to hold the position of an insolvency practitioner. If any of these restrictions are broken, the person may be prosecuted. A bankruptcy can be cancelled, meaning that the restrictions no longer apply, if the person repays all of their debts or has had them secured or guaranteed by a third party, or an Individual Voluntary Arrangement is made with the creditors to repay the debts.