What happens if a creditor tries to declare you bankrupt?
By Mr Bankruptcy
17th September 2024
Filing for bankruptcy can be the best way to move forward if you face an unmanageable debt and creditors are breathing down your neck.
But what if a creditor makes the first move and applies to the courts to declare you bankrupt? Does it make a difference or put you at a greater disadvantage?
Voluntary bankruptcy
I’ve written about how the word ‘bankruptcy’ still conjures up fear and stigma in society. People see it as the worst outcome for someone in serious debt, but I argued that it’s not all bad.
For one thing, it’s usually a last resort if you have debts you really can’t repay. Also, becoming bankrupt has its pros as well as cons and was originally introduced to help both debtors and creditors. It’s a legal process that allows all parties to move on, and as a debt advisor I do recommend to some clients that voluntarily declaring themselves bankrupt can be the best way forward.
Involuntary bankruptcy
However, someone in serious debt can also find themselves subject to an involuntary bankruptcy petition by any one of their creditors if they are owed more than £5,000.
This is usually done when the creditor believes you can’t or won’t repay your debt and they’re no longer willing to explore alternative solutions.
The statutory demand is the first legal requirement before court proceedings can start. This is a formal warning that if you don’t repay a debt within 21 days then the creditor will apply for a Bankruptcy Order.
As a debtor, you can pay the debt if possible, or you can challenge it within 18 days of receipt if you can prove you don’t owe money, in which case the demand is ‘set aside’.
If it appears to the creditor that you have no reasonable prospect of repaying the debt, they can then apply to the courts for a petition of bankruptcy, which sets a hearing date. They do this for a number of reasons:
- They believe you have assets such as other property that could be sold to pay off your debt.
- They think you’ve acted dishonestly, or hiding assets, and want your financial affairs to be investigated.
- Employees can make you bankrupt in an attempt to recover wages you owe them.
- To prevent you from getting more credit in the future.
The petition must then be correctly served to you, usually in person in the first instance. You may decide not to contest the application, but if you don’t want to be declared bankrupt (which can entail winding up your business) you must challenge it at least 5 days before the bankruptcy hearing, providing evidence to support your case.
You don’t have to pay a court fee to oppose a bankruptcy petition, but you might have to pay costs if you aren’t successful. You may be entitled to legal aid, but this is getting rarer as budgets are cut.
At the hearing, the court has several options:
- Make the bankruptcy order against you, after which an official receiver will be appointed to prepare a report on your debts and assets.
- Dismiss the bankruptcy petition.
- Adjourn the hearing to a later date if the court needs more information or if the debtor asks for more time to pay.
The important thing if you find yourself facing possible bankruptcy proceedings is not to ignore a statutory demand and seek professional advice as soon as possible from a qualified and Financial Conduct Authority registered bankruptcy consultant. It may be your best option not to oppose, but don’t allow yourself to be railroaded into this outcome if it’s not in your best interest.
Case study
As bankruptcy consultants, James Rosa Associates has handled all kinds of cases. For example, we recently helped a tradesman who was running a business with his son supplying and fitting bathrooms. The business’s debts were in his name and added up to over £424,000.
Our client originally planned to sell his home and to use the profits to negotiate full and final settlements with all his creditors. However, this is always going to be tricky because all creditors had to agree. When his house was valued at a lot less than originally thought, one of his creditors issued a statutory demand.
We worked with the creditor over several months to reach an amicable resolution but the creditor who had issued the statutory demand eventually lost patience and petitioned for our client’s bankruptcy.
Our client decided not to fight the petition, so he was made bankrupt. We were able to take him through the process, accompanying him to his interview with the Insolvency and advising throughout. The result that the debt against him was completely written off.
James Rosa Associates, bankruptcy consultants
It’s very important to choose a bankruptcy consultant you can trust and feel comfortable opening up to about your financial details. It pays to do some research by checking reviews first and asking for recommendations.
James Rosa Associates are experienced and knowledgeable in bankruptcy law. We pride ourselves on taking a supportive and non-judgemental approach and we work with you to understand your financial situation and help you reach the most suitable solution.
With a supportive and non-judgemental approach, we also offer a wide range of advice and professional services to business owners/directors, as well as individuals. Our services include:
We are authorised and regulated by the Financial Conduct Authority (FRN665061) to work with clients to produce bespoke solutions to fit their specific circumstances.
Find out if you qualify for a free consultation
If you need to tackle an unmanageable debt or bring a dispute to a swift and cost-effective resolution, you may qualify for our free consultation. Contact James Rosa Associates, ring 0845 6807217 or email enquiries@jamesrosa.co.uk to find out more.
Please be advised that all views expressed in these posts are those of the author and not of James Rosa Associates ltd.