The following are frequently asked questions we receive on a regular basis from clients seeking general personal insolvency legal advice; clients wanting to set aside a statutory demand; or opposing a bankruptcy petition; to those in bankruptcy seeking an annulment; to creditors intending to issue a bankruptcy petition to claim an undisputed debt from a debtor.
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Bankruptcy is a legal process by which a person declares voluntarily or is forced to declare by a creditor that they cannot repay their existing unsecured debts
Yes. You can present a bankruptcy petition against yourself if you can show that you are unable to pay your debts. There is no minimum level of debt you have to show before you can do so.
Before you apply to become bankrupt it would be prudent to ensure that you have enough money for your everyday expenses because ordinarily once a bankruptcy order is made the court it is likely that your bank accounts will be frozen. An application must be made to the Court and should be supported by a Statement of Affairs detailing your current financial position, along with a court fee of £680. The application must comply with certain statutory requirements. Note: it is a criminal offence to make false statements on your bankruptcy application (or fail to disclose all of your assets e.g. property that you own or jointly own).
Most unsecured debts e.g. personal loans, credit card debt, overdraft facilities and payday loans you have when you file for bankruptcy will be covered by the bankruptcy and will automatically be written off at the conclusion of your bankruptcy. However, declaring bankruptcy is not a carte blache to write off all the money you owe to creditors because not all types of debt are written off
Secured debts cannot be automatically written off when declaring bankruptcy for example a mortgage commitment or a secured loan secured with a charging order. Certain types of unsecured debts cannot be included in the bankruptcy for example court fines, student loans, child support payments, maintenance payments and parking/speeding fines.
You will not be able to act as a company director and manage a business without informing your business contacts that you have been declared bankrupt. Any spare income you have will be used to pay off your creditors. You cannot borrow in excess of £500 without informing the lender of the loan that you are bankrupt.
A bankruptcy petition is an application made by a creditor who is owed money for the debtor’s assets to be sold to pay their debts e.g. where a statutory demand has not been paid. A debtor can also apply for a bankruptcy petition if they cannot pay their own debts. The Court will then list the petition for a hearing and if it is shown at the hearing that the debtor cannot pay its debts, then the Court will make a bankruptcy order.
In order to present a bankruptcy petition, a creditor must:
- prove that it is owed £5,000 or more;
- check whether there are any other bankruptcy petitions against the debtor;
- complete the relevant court forms; and
- pay the court fees, which consists of a £990 petition deposit and £280 for court fees.
Yes. But there are only limited grounds on which the debtor can oppose a bankruptcy order. A bankruptcy petition may be challenged on the following grounds:
- the debt alleged in the demand to be owing is genuinely disputed on substantial grounds by the debtor. If the debt is disputed, the petition will likely be dismissed by the court;
- however, unsuccessful arguments presented in an attempt to set aside a statutory demand cannot be reheard by the Court at the bankruptcy petition hearing;
- the Court can also dismiss the petition if it is satisfied that the debtor is able to pay all the debts to the creditor; or
- the company has a genuine right of set-off against the creditor which exceeds the amount claimed in the demand.
The procedure to oppose a bankruptcy petition is to file a witness statement in opposition in court not less than five business days before the date of the hearing of the petition (rule 4.18(1), Insolvency Rules). A copy of the evidence must also be sent to the petitioning creditor as soon as reasonably practicable (rule 4.18(2), Insolvency Rules).
The debtor is entitled to appear at the hearing of the petition and to oppose the making of a bankruptcy order. It is usual for the debtor to instruct solicitors and/or counsel to appear on his or her behalf at the hearing. If the debtor chooses not to instruct legal representatives, they can attend personally to represent themselves.
If your bankruptcy petition is successful, the Court will make a bankruptcy order within 28 days. Following receipt of the sealed order, you will attend an interview with the Official Receiver, who will notify the Land Charges Department that the bankruptcy order has been made and this will be added to the public register of writs and orders.
The Official Receiver (OR) is a civil servant working for the Insolvency Service. When you are declared bankrupt the OR takes control of all of your assets and you have a duty to co-operate with them. The Official Receiver acts as a trustee of the bankrupt’s estate.
The Official Receiver’s role includes:
- assuming control over your property;
- calculating whether the debtor is able to repay all of its debts;
- conducting an interview with the bankrupt;
- advertises the bankruptcy in the London Gazette;
- arranging a meeting of your creditors and informing your creditors of your bankruptcy;
- acting as a trustee of your bankruptcy and distributes your assets to your creditors.
After the bankruptcy order is made, you will ordinarily hear from the OR within 2 working days. The OR may send a questionnaire to you which asks you to provide full details of your financial situation. It is the bankrupt’s duty to complete the questionnaire, return it within the time provided by the OR along with any records documenting your financial situation.
The interview with the OR takes place within 10 working days of the bankruptcy order being made. The interview with the OR is ordinarily conducted by telephone. The OR will go through your answers to the questionnaire, query the circumstances that have led to your bankruptcy and answer your questions about the bankruptcy process.
A creditors meeting may be arranged by the OR with all your creditors in attendance which you may be required to attend.
If you don’t cooperate with the Official Receiver, you may be prosecuted for failing to do so and the Official Receiver can apply to the court for the following:
- an order for you to attend a public examination;
- an arrest warrant if you fail to attend a public examination;
- a bankruptcy restrictions order; or
- an order for your discharge from bankruptcy to be suspended.
A Bankruptcy Restriction Order (BRO) is a court order, which extends the period of time for which you have to follow certain restrictions. This can last up to 15 years and can restrict your financial affairs.
Anyone subject to a BRO cannot:
- get credit of £500 or more without telling the lender that you have a BRO;
- act as a director or get involved with setting up, promoting or operating a company without permission from the court;
- carry out a business in a different name from the one under which you were made bankrupt, without telling everyone you do business with the name in which you were made bankrupt;
- be an MP, local councillor, school governor or hold certain other positions in associations, governing bodies or professions.
If you break any of the restrictions when a BRO is made against you, you will be committing a criminal offence. You could be fined or sent to prison. If you have a BRO and have broken any of the restrictions, you should seek legal advice as soon as possible.
Bankruptcy offences are criminal offences. There are many different kinds of bankruptcy offences and you can be punished with a fine or be sent to prison for up to seven years for committing an offence. Examples of such offences include:
- being dishonest or failing to disclose relevant information about your finances or property at any point throughout your bankruptcy;
- hiding any property worth £500 or more which should be handed over to the Official Receiver or trustee;
- getting credit of £500 or more without telling the lender about your bankruptcy;
- carrying on business under a different name from the one under which you were declared bankrupt;
- becoming a company director or holding certain positions without the court’s permission; and
- breaking any other restrictions that are placed on you during the bankruptcy period.
A bankrupt will be automatically discharged at the end of one year from the commencement of bankruptcy unless one of the following occurs: A creditor can object to the Official Receiver’s notice of discharge; The trustee in bankruptcy or the Official Receiver can apply to the court for a suspension of the one year automatic discharge period. Once discharged from bankruptcy, the bankrupt is entitled to apply to the court for a certificate of discharge. The Secretary of State is required to delete information relating to the bankruptcy from the Insolvency Register three months after discharge. Although, your bankruptcy will appear on credit searches for at least six years, you will be able to apply for credit or financial services, however acceptance of such credit will at be lenders’ discretion. There are also certain debts, which are not released by discharge.
If your bankruptcy is annulled, it will be treated as if it never occurred. Your assets may be restored to you and all bankruptcy entries will be removed from the register at the Land Charges Registry.
You must act quickly (usually 18 days) when you receive a statutory demand if you hope to avoid the creditor bankrupting you. Where that creditor is Her Majesty’s Revenue & Customs (“HMRC”), it is inevitable that unless action is taken the demand will eventually lead to the presentation of a bankruptcy petition.
A statutory demand is a document outlining a creditor’s claim against a debtor. The statutory demand is intended to be relied upon in further legal proceedings against you (to bankrupt an individual) and which ought to: provide details of the financial claim, with interest calculated to the date of the demand; be served on you as debtor personally or by post; and tell you what to do to comply with the demand, have it set aside and the consequences of doing neither. The format must follow the guidelines set out in the Insolvency Rules 1986, but it is not a court document. Although the demand is dated at the time of issue, it does not expire. The time limits to deal with a demand only apply from the date of service.
It is imperative that you act promptly – you have in the first instance only 18 days as of right to apply to the Court for a set aside once you have received a Statutory Demand. Should you apply and later than 18 days after the date of service, your application will be listed only at the Court’s discretion and you will need the permission of the Court to make the application. Often the use of Statutory Demands is inappropriate and in many cases they can be set aside by the Court. This will prevent a creditor from commencing any formal insolvency process against you.
You can however apply to have your bankruptcy annulled and it will be treated as if it had never happened and your assets will be restored to you. You can apply to have your bankruptcy annulled on the following grounds:
- the bankruptcy order should not have been made;
- the bankruptcy debts and expense of the bankruptcy have all been paid or secured to the satisfaction of the court; or
- you have entered into an Individual Voluntary Arrangement since the bankruptcy order was made.
To annul your bankruptcy you must submit an application to the court, which will include a witness statement and evidence. You will also be required to pay a court fee. The court will then list your application for a hearing. It is important you get legal advicethroughout the process and a legal representative to represent you at any hearing in order to get the best possible outcome and your bankruptcy successfully annulled.
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