Individuals in financial difficulty may be faced with the prospect of bankruptcy or threats of bankruptcy. The below represents a list of bankruptcy frequently asked questions.
If your question does not appear below then please do contact us.
What is Bankruptcy?
Bankruptcy is a formal insolvency procedure whereby a trustee in bankruptcy is appointed in order to realise and distribute a bankrupt’s assets for the benefit of his/her creditors.
Bankruptcy is designed to enable an orderly distribution of assets for the benefit of creditors. It is also designed to provide relief from debts as at the date of bankruptcy.
Can I make myself bankrupt?
Yes. You can make an online application to the adjudicator. The adjudicator is a government official appointed by the Secretary of State. The only ground available to do so is if you cannot pay your debts as and when they fall due.
Please visit https://apply-for-bankruptcy.service.gov.uk/
What is a Statutory Demand?
This is a written demand for payment of debt now due, with payment of the debt to be made within 21 days of service of the written demand.
A statutory demand is served to either obtain payment of a debt due now or in the future or to demonstrate that an individual is insolvent. A statutory demand should not be served when a debt is disputed or where there is a cross claim.
What should I do if I receive a statutory demand?
If you are in receipt of a statutory demand, you should do one of the following:
- make an application within 18 days of receipt of the statutory demand to set the demand aside
- make payment in full
- offer to pay by instalments; or
- offer property as security for the debt
In the first instance you may want to write to the person/entity that has signed the statutory demand to request that they withdraw it.
On what grounds can a statutory demand be challenged?
A statutory demand can be challenged on the following grounds:
- that you appear to have a counterclaim, set-off or cross demand which equals or exceeds the amount of the debt specified in the statutory demand;
- the debt is disputed on grounds which appear to the court to be substantial;
- it appears that the person who issued the statutory demand holds some security in relation to the debt claimed by the demand, and the security is not set out in the statutory demand, or the court is satisfied that the value of the security equals or exceeds the full amount of the debt;
- the court is satisfied, on other grounds, that the demand ought to be set aside
Any application to set aside a statutory demand must be made within 18 days from receipt of the statutory demand.
Who can issue a bankruptcy Petition?
There are different types of persons that are able to issue a bankruptcy petition against you, however the main persons in practice are any individual or company that you owe monies to, who will be known as a ‘creditor’.
What are the grounds for presenting a bankruptcy petition?
Subject to any arguments surrounding jurisdiction, the grounds to present a bankruptcy petition are:
- that your center of main interest (known as your ‘COMI’) is in England & Wales;
- the amount of the debt is equal to or exceeds the bankruptcy level. This is currently £5,000;
- the debt is for a liquidated sum payable to your creditor either immediately or at some certain, future time, and is unsecured;
- the debt is a debt which you appear to either be unable to pay or to have no reasonable prospect of being able to pay; and
- there is no outstanding application to set aside a statutory demand
served in respect of the debt.
What is a liquidated sum?
A liquidated sum is where the sum is certain. For example, a sum claimed by way of damages is not a liquidated sum as this would require the assistance of a judicial process in order to ascertain the amount due. Once there is an order from the court with a fixed amount for damages, this would then become a liquidated sum.
What is the process involved with a bankruptcy Petition?
In the normal course a statutory demand will be served. Absent either (a) payment of the debt (b) offer of security for the debt, or (c ) an application to set aside the statutory demand within 21 days from service, a bankruptcy petition is filed.
The bankruptcy petition will then be personally served on the debtor. The bankruptcy petition will state the court, date and time of the bankruptcy petition hearing.
What can happen at the hearing of the bankruptcy petition?
The petitioning creditor and the debtor are usually represented at the hearing. The court will then consider the facts of each case and order one of the following:
- Make a bankruptcy order, provided that the court is satisfied that the debt due has not been paid, secured or compounded for;
- Adjourn the petition hearing to a future date;
- Dismiss the petition; or
- Grant the petitioning creditor relief to withdraw the
petition, if requested.
Other creditors may also attend the petition hearing and support the petition. If the petitioning creditor has been paid off or wishes to withdraw the petition a supporting creditor an ask the court to be substituted in place of the petitioning creditor.
Can a bankruptcy petition be challenged?
Yes. Even if you have not made an application to set aside the statutory demand, this does not stop you from presenting arguments to court that are relevant to a set aside application, provided that these arguments have not been put before the court previously. In this scenario it is likely that the court would adjourn the petition hearing and list directions for the petitioning creditor to file and serve any evidence in response.
It is of course preferably however to put any arguments via an application to set aside a statutory demand in the first instance. Where a statutory demand has been served and the debt has not been paid, this can be used as evidence that you cannot pay your debts as and when they fall due.
Can I ask the court to give me more time to raise the money to pay off the debt?
Yes. The court has a general discretion to adjourn the petition hearing. Whether a court will adjourn the hearing is fact sensitive.
However, it is important to that a debtor can show the active steps that he/she is taking to raise the money and within a reasonable timeframe. This should be evidenced and put before the court and the petitioning creditor in good time before the petition hearing by way of a witness statement. A debtor should also request the agreement of the petitioning creditor for an adjournment.
If you intend on raising finance against your property, or wish to sell your property in order to pay off the debt, you will need to seek a validation order from the court.
What is a validation order and how do I obtain one?
Any disposition by a bankrupt from the date of presentation of a bankruptcy Petition to the date of bankruptcy is automatically void. This is designed to stop potential bankrupt’s from removing assets for their estate.
A validation order is therefore an order form the court which ratifies or ‘validates’ the transfer of property so that it is not automatically void. Accordingly ou would need to obtain a validation order if you wanted to transfer away any asset from the date of presentation of a bankruptcy petition. This is commonly a property which you want to release monies to pay off debts.
You will need to make an application to court, setting out the relevant circumstances and why a certain transaction should be validated. The court has a general discretion to grant the order sought, but you must be able to show that the transaction will not prejudice your creditors or will be generally beneficial to them. Orders are also granted if you can if fact pay your debts.
You can apply for a validation order after a transaction has been made, however it of course best practice to apply for a validation order before the transaction goes ahead.
What are the alternatives to bankruptcy?
Below are the main alternatives to bankruptcy:
Individual Voluntary Arrangement
Is a process whereby an individual comes to an agreement with his/her creditors to pay a proportion of the debts due. This is undertaken with the supervision of an insolvency practitioner who is known as a ‘nominee’ when an arrangement is proposed, and as the ‘supervisor’ when an arrangement is agreed. An arrangement can only be agreed provided that the necessary majority of creditors agree to it by way of decision procedure. Once agreed, this will bind all unsecured creditors.
Debt Relief Order
Is a process which enables debtors with very limited assets and income to discharge specific debts after a period of 1 year. An application for a debt relief order is made to the Official Receiver, and will only be approved if the debtor (a) cannot pay his/debts, (b) is domiciled in England & Wales, (c ) has disposable monthly income of less than £50, (d) has assets valued at less than £1,000 and (e) is not a party to any other insolvency procedure. Once a debt relief order has been made, the creditors specified in the order cannot take any action against the debtor without the permission of the court.
County Court Administration Order
Enforcement Restrictions Order
A
Debt Repayment Plan
Informal arrangement
You may be able to come to an informal arrangement to make payments to your creditor via instalments, or offer security.
Refinancing
You may be able to borrow money in order to pay off your debts in a structured way. This may include releasing equity in a property or other asset.