Bankruptcy & Insolvency Glossary
Clear, plain-English definitions for terms related to severe debt solutions and insolvency procedures.
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Administration Order
A court order that allows someone with debts under £5,000 to make regular payments to the court, which distributes the money among creditors. It stops creditors from taking further action and can be a useful alternative to bankruptcy for smaller debts.
Annulment
The legal cancellation of a bankruptcy order, as if it never happened. An annulment can be granted if the bankruptcy order should not have been made, if all debts and costs have been paid in full, or if an IVA has been approved by creditors.
Asset
Any property or item of value that you own, including your home, car, savings, investments, and valuable possessions. During bankruptcy, your assets may be sold by the Official Receiver or trustee to repay your creditors.
Bankruptcy
A formal legal process for individuals who cannot repay their debts. A bankruptcy order is made by a court and typically lasts one year, after which most debts are written off. However, bankruptcy has serious consequences including loss of assets, restrictions on financial activity, and a six-year mark on your credit file.
Bankruptcy Order
The formal court order that declares a person bankrupt. It can be applied for by the individual themselves or by a creditor owed at least £5,000. Once made, the Official Receiver takes control of the bankrupt person's assets.
Bankruptcy Restrictions Order (BRO)
An order that extends the restrictions of bankruptcy beyond the standard one-year period, for between two and fifteen years. A BRO is issued when the bankrupt person has behaved dishonestly or irresponsibly, such as by hiding assets or taking on credit they knew they could not repay.
Breathing Space
A government scheme (also known as the Debt Respite Scheme) that gives people in problem debt 60 days of legal protection from creditor action, enforcement, and most interest and charges. This provides time to seek debt advice and arrange a formal debt solution.
County Court Judgment (CCJ)
A court order issued in England and Wales when someone fails to repay money they owe. A CCJ is a serious negative marker on your credit file for six years and can be a precursor to bankruptcy proceedings if debts remain unpaid.
Creditor
Any individual, company, or organisation to whom you owe money. In insolvency proceedings, creditors are ranked in order of priority — secured creditors (such as mortgage lenders) are paid first, followed by preferential creditors (such as employees owed wages), and then unsecured creditors.
Debt Management Plan (DMP)
An informal agreement between you and your unsecured creditors to repay your debts at a reduced rate over an extended period. DMPs are arranged through a debt management company or charity and are not legally binding, meaning creditors can still take action against you.
Debt Relief Order (DRO)
A formal insolvency solution for people with low income, few assets, and debts under £30,000. A DRO lasts 12 months, during which creditors cannot pursue you. If your situation has not improved after 12 months, your debts are written off. It appears on your credit file for six years.
Discharge
The point at which a bankrupt person is released from their bankruptcy and most of their debts are legally written off. Standard discharge occurs automatically after 12 months, though it can be delayed if the bankrupt person has not cooperated with the Official Receiver.
Equity
The value of an asset (most commonly a property) minus any outstanding debt secured against it. In bankruptcy, if you own a property with equity, the trustee may seek to realise that equity to repay creditors.
Individual Voluntary Arrangement (IVA)
A formal, legally binding agreement between you and your creditors to repay a portion of your debts over a fixed period, typically five years. An IVA must be set up by a licensed insolvency practitioner and requires approval from creditors holding at least 75% of the total debt value.
Insolvency
The state of being unable to pay your debts as they fall due, or having liabilities that exceed your assets. Insolvency is not the same as bankruptcy — it is the financial condition that may lead to a formal insolvency process such as bankruptcy or an IVA.
Insolvency Practitioner (IP)
A licensed professional authorised to act in formal insolvency proceedings. Insolvency practitioners set up IVAs, act as trustees in bankruptcy, and administer company liquidations. They must be licensed by a recognised professional body such as the Insolvency Practitioners Association.
Official Receiver
A government official and officer of the court who acts as the initial trustee in bankruptcy cases. The Official Receiver investigates the bankrupt person's financial affairs, takes control of their assets, and determines whether a private trustee should be appointed.
Petition
The formal application made to a court to request a bankruptcy order. A petition can be made by the debtor themselves (a debtor's petition) or by a creditor owed at least £5,000 (a creditor's petition).
Preferential Creditor
A creditor who has a higher priority claim on assets in insolvency proceedings than ordinary unsecured creditors. In personal insolvency, preferential creditors typically include employees owed wages and pension contributions.
Proof of Debt
A formal document submitted by a creditor to an insolvency practitioner or Official Receiver, setting out the amount they are owed. Creditors must submit a proof of debt to participate in any distribution of assets.
Secured Creditor
A creditor who holds a legal charge over an asset (such as a mortgage lender holding a charge over your home). Secured creditors have priority over unsecured creditors in insolvency proceedings and can repossess the secured asset if debts are not repaid.
Statutory Demand
A formal written demand from a creditor requiring payment of a debt of £5,000 or more within 21 days. If the debt is not paid or disputed, the creditor can use the statutory demand as evidence of insolvency to petition for bankruptcy.
Trustee in Bankruptcy
The person responsible for administering a bankrupt person's estate — collecting assets, selling them, and distributing the proceeds to creditors. The Official Receiver acts as trustee initially, but a private insolvency practitioner may be appointed if there are significant assets.
Unsecured Creditor
A creditor who does not hold any security (charge) over your assets. Unsecured creditors — such as credit card companies, personal loan providers, and utility companies — are paid last in insolvency proceedings, after secured and preferential creditors.
Winding Up
The process of closing down a company and distributing its assets to creditors and shareholders. The personal equivalent is bankruptcy. A winding-up petition is the corporate equivalent of a creditor's bankruptcy petition.
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