TelephoneCall us on: 01527 314050

EmailEmail us on:

The difference between Bankruptcy and Insolvency

These are two definitions that both refer to a situation whereby liabilities exceed assets of either a business or an individual, and so it’s no surprise that many people get them both confused. To try help, simplify matters, we’ve explained what each term means below.


Insolvency can be defined as a financial state that occurs when:


  • Your debts exceed your assets i.e. the money going out to pay your bills is higher than your income.
  • You are not able to pay your bills on time and as they fall due.


Insolvency can relate to any legal entity and covers individuals, sole traders and companies. Whilst these can be insolvent, the way in which we deal with the insolvency varies. In addition to the test above, pursuant to the Insolvency Act 1986 a Company is deemed unable to pay its debts; 


  • If a creditor to whom the Company is indebted in a sum exceeding £750 then due, has a written demand (also known as a Statutory Demand) served upon it requiring the Company to pay the sum due within 3 weeks, but fails to make the payment as demanded, then it is said to be insolvent.
  • If, in England and Wales execution or other process issued on a judgment, decree or order of the Court in favour of a creditor of the Company is retuned unsatisfied in whole or in part.
  • If it is proved to the satisfaction of the Court that the Company is unable to pay its debts as they fall due.

Bankruptcy is a remedy for individuals who are insolvent based either on the balance sheet test or the cash flow test as detailed above. Bankruptcy applies only to individuals not limited companies. Bankruptcy is a legal procedure that results from a successful application to Court (or on-line now) on the following basis:


  • You have made an application on-line to voluntarily declare yourself bankrupt
  • Somebody you owe money to (a creditor) has applied to Court to have you declared bankrupt.


If you are an individual or sole trader that is insolvent then bankruptcy could be an option for you.  For further advice please contact us here at The Timothy James Partnership.

Added: 18 May 2017 11:44

Back To News

Site Map

Home, About Us, Our Services, Contact Us
Terms and Conditions, Privacy Policy, Site Map

The Timothy James Partnership

Copyright © 2016. All Rights Reserved

Insolvency Practitioners Association
About Us

We are an independent firm of specialist Licensed Insolvency Practitioners located in Bromsgrove, Worcestershire.

At The Timothy James Partnership, we work very closely with local businesses and professionals, providing guidance on formal insolvency procedures and advice on restructuring businesses.

We recognise that at times, companies find themselves in difficult financial circumstances and our aim is to provide practical solutions in these situations.