Bankruptcy

I have set out below what I hope is useful and helpful detailed information if you have been served with a Bankruptcy Petition.  If you are considering using this as a method of enforcement I have done an article which can be found here.  Also I have set out more relevant notes on our debt recovery pages

If you owe someone a debt of more than £750 which you are unable to pay, then you are at risk of being made bankrupt.  There are two grounds that creditors can rely on to present a bankruptcy Petition.  The first of these is that the creditor has an unsatisfied Judgment.  This means that the creditor has issued  proceedings, got a Judgment and that they have tried to pursue it by instructing the bailiffs, or High Court Enforcement Officer, to levy execution on the debtor's goods and have been told that there are insufficient to be levied upon.  The second is that the creditor has served the debtor with a Statutory Demand for the money due and the debtor has failed to pay the debt, or make an application to set aside the Statutory Demand.  It is important to note that in order to serve a Statutory Demand the creditor does not need to have a Judgment.

Like a Statutory Demand a bankruptcy Petition should be personally served upon the debtor.  If the creditor has difficulty in personally serving the bankruptcy Petition, then they can apply to the Court for an Order for substituted service which may allow the Petition to be served either through the post, on a third party, or, may be by advertisement in a local newspaper, which may be the last thing that a debtor would want.  All of these steps of course increase the bankruptcy costs which are initially payable by the creditor but which will be borne by the debtor if he is ultimately made bankrupt and has any assets.

Sometimes a debtor may want to present their own Petition because of the level of debt that they owe to various creditors.  Obviously a debtor can proceed straight away to the issue of his own Petition but whether a Petition is presented by a creditor, or a debtor, in each case there is a Court fee and an Official Receiver's deposit which need to be paid.  Debtors' Petitions may be dealt with without a hearing but a Petition presented by a creditor will always result in the Court fixing a date for a hearing, which is usually several weeks from the date when the Petition was issued.  During this time it may be possible to reach some agreement with the creditor about the payment of the debt which may result in the creditor being prepared to ask the Court to adjourn the hearing.  Although the Court would not want to make a bankruptcy Order where this can be avoided, it is important that both debtors and creditors realise that adjournments are at the discretion of the Court and it is not safe to assume that a Court will automatically agree for a Petition to be adjourned over and over again.

Once a bankruptcy Petition has been served, and the matter is listed for hearing, other creditors may become aware of the Petition, perhaps because they are considering presenting their own Petition and it is possible that some creditors may come forward to support the original creditor's Petition.  If this is the case, then the debtor will also have to reach agreement with them about paying off their debt as well as the debt owed to the petitioning creditor. 

If the debtor cannot pay off all of the debts of both the petitioning creditor and any supporting creditors, then the debtor runs the risk that a bankruptcy Order may be made, even if he has paid off the debt owed to the creditor who presented the bankruptcy Petition.  This is because a supporting creditor may be able to step into the shoes of the petitioning creditor and take over the Petition.

It is often this inability to pay everyone at once which results in a debtor being unable to fight off a bankruptcy Petition and of course the longer the matter goes on, because of the number of adjournments, the more likely it is that other creditors may come forward to support the Petition.  If a bankruptcy Petition is served upon you, it is very important that you deal with it as soon as possible and certainly do not ignore it.  Just because a Petition has been issued, does not mean that a bankruptcy Order will automatically follow and many creditors are aware that if a bankruptcy Order is made, there is no guarantee that their debt will be paid.  This is because it is the provisions of the Insolvency Act and Insolvency Rules which govern the order in which debts are paid and simply because someone has presented the Petition does not put their debt at the head of the queue.  If a bankruptcy Order is made the petitioning creditor may find himself as part of a large group of unsecured creditors who have little prospect, if any, of being paid more than a few pennies in the £, if anything at all.  For those reasons many creditors should be, and in our experience are, willing to listen to proposals for payment over a period of time and we have known creditors withdraw Petitions which are not paid in full, provided there appears to be some reasonable prospect of the debt being paid over a reasonable period of time.  Of course there can be no guarantee that the creditor will view the matter in this way and a lot will depend upon the nature of the creditor and whether their business would suffer if they received no payment at all.  The important thing to remember however is that it is always worth trying to negotiate with the creditors.

It is possible that even at this late stage a debtor may say that he has a defence to the bankruptcy Petition, even though this should have been raised earlier, either before the creditor obtained Judgment, or at the time when they served a Statutory Demand but it still may be possible to defend the Petition.

If a bankruptcy Order is made then it is effective from the date and time when the Order is made and generally speaking a bankruptcy Order lasts for 12 months.  Following the making of the Order the bankrupt will be contacted by the local office of the Official Receiver who will want to interview the bankrupt to obtain details of the bankrupt's assets, debts, income and expenditure.  The Official Receiver is a civil servant who will usually pass the case on to an insolvency practitioner in private practice who will be appointed the bankrupt's Trustee in Bankruptcy if it seems likely that the bankrupt has assets or income which may be realised for the benefit of the creditors.  Either the Official Receiver or the Trustee will contact the creditors, realise any assets and distribute whatever funds are available.  Although for most bankrupts a bankruptcy Order lasts for only 12 months, after which they are automatically discharged, the administration of their estate may continue for a considerable period beyond this. 

The above is a general guide to this topic.  Your situation is individual to you.  You require specialist advice tailored to your needs.  There is no substitute for this.  Contact us now to see how we can help you and to arrange an initial meeting to discuss your individual needs. 

 

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