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What is the difference between bankruptcy and insolvency?


2 December 2019:  Bankruptcy in the United Kingdom only applies to an individual, Katie Price being one of the most recent celebrities declared bankrupt. Unlike the United States, partnership entities or limited companies do not become bankrupt. Insolvency, on the other hand, is a global term that is used to describe all types of financial failure. Applicable to individuals, partnerships and limited companies.

Bankruptcy is just one of the various types of personal insolvency, one of which Katie Price had entered and failed to satisfy, an individual voluntary arrangement. Others include debt relief orders for debts less that £20,000 and debt management plans.

Individuals and bankruptcy

An individual, whether in business, employed or unemployed, can be declared bankrupt if they personally owe more than £5,000 to any creditor. Creditors that are owed money can petition for an individual’s bankruptcy. The individual can also apply to the court to make themselves bankrupt.


There are two legal definitions of insolvency:

  • Where a business or individual’s liabilities (what you owe) exceed your assets (what you own).
  • Where you are unable to pay your debts as they fall due.

There are a few different types of insolvency, of which only one type is bankruptcy. Under the insolvency regime, there are various possible types of financial problems. For companies and partnerships, these include administrations, liquidations, company voluntary arrangements, and partnership voluntary arrangements. Many of these allow a business to be rescued out of an insolvent position.

If you are facing financial difficulties and wish to discuss recovery options, please contact any one of our management team at BRI Business Recovery and Insolvency.