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Bankruptcy

Sub pages : Should I Continue Trading? | Bankruptcy | Individual Voluntary Arrangement | Options For Limited Companies |

Bankruptcy (239KB)

Statutory Demand

Creditors can issue bankruptcy petitions for debts of £750 or more, but this is only likely to be threatened by HM Revenue and Customs regularly. However, Business Debtline has seen landlords and trade creditors start bankruptcy proceedings on occasion.

Before a creditor can lodge a bankruptcy petition, the creditor must serve a statutory demand on you or have unsuccessfully attempted to recover a court judgment.

If you dispute the debt, you can apply to the court to have the statutory demand set aside.
If you wish to avoid bankruptcy by setting up an individual voluntary arrangement you should apply to the court for an interim order via an insolvency practitioner.

If you receive a statutory demand, phone us for advice. You must act within 18 days if you want to make an application to the court.

You may be able to negotiate payments with the creditor to avoid bankruptcy.

Creditors or collection agencies will sometimes issue a statutory demand to get you to pay up if they feel that you are holding back payment for whatever reason, or you have assets they can get hold of to repay the debt.

They sometimes issue them with no intention to make you bankrupt, as it is a cheap way to scare you into paying.

If you have no assets and are on a low income, tell your creditors now. They may consider it not worth going to the expense of making you bankrupt if they have nothing to gain.

Send them your budget sheet and list of priority creditors and secondary creditors so that they can see the full extent of your debts.They may decide to accept a monthly payment after all, rather than forcing you out of business if they have nothing to gain.

However, always treat a statutory demand seriously and don’t leave the matter until it is too late to deal with.

If the matter proceeds to court, the case may be heard at the High Court in London – it is often difficult to get the hearing transferred to a local court but you must attend in person. HM Revenue and Customs generally issue's proceedings in London.

Even so, the judge at the court hearing has to make a bankruptcy order unless:

You have paid the debt off and have proof;
You have given the creditor security to cover the debt;
You can prove the debt is not due;
The creditor has unreasonably refused an offer to secure or compound the debt.

Unlike with county court judgments, the court will not allow you to pay the debt off by monthly instalments to avoid bankruptcy. However, the judge may adjourn the hearing to allow you a short time to raise capital to pay off the debt in full or look at the possibility of you making an individual voluntary arrangement.

Dealing with a Statutory Demand (282kb)

The Bankruptcy Petition

You may lodge your own bankruptcy petition, the total cost for which is presently £475. This consists of £150 court fees and £335 for the official receiver. You may apply to the court to waive the £150 court fees in cases of hardship or if you are claiming certain benefits.

Bankruptcy is dealt with in the same way whether you present your own petition or are made bankrupt by a creditor.

Assets

Once you are bankrupt, the official receiver or appointed trustee may wish to sell any assets that you have. Certain goods are not treated as assets such as:

clothing, bedding, furniture and household equipment, and the provisions necessary for satisfying the basic domestic needs of the bankrupt and his pr her family;
such tools, books, vehicles and other items of equipment necessary for the bankrupt to carry on with employment.

If an asset such as a car is essential for work you may be able to keep it. However, if it is of considerable value it may be sold, and you will have to replace it with a cheaper one.

If you own property then it may be sold depending on whether it has any equity (value) in it. Once you have gone bankrupt the interest in your home is transferred to the official receiver or trustee. If you are the sole owner then the whole of the value of the property is transferred. With jointly owned property, the official receiver is usually only entitled to the bankrupt’s share of the equity, known as your beneficial interest.

You may be considered to have a beneficial interest in your property even if you are not named on the mortgage, i.e. it is in your partner’s name. Phone us for advice.

It may be possible for the joint owner, a member of the family or friend to buy out your beneficial interest in the property. This could be particularly advantageous where there is little or no equity as this could be for a nominal amount.

New Rules from April 2004

The Enterprise Act 2002 became effective in April 2004. If you went bankrupt before this date it used to be the case that the official receiver could sell your property at any time in the future.

From 1 April 2004, the official receiver has three years in which to deal with the interest in your property.

If you were made bankrupt before this date, the three years started on 1 April 2004. If you were made bankrupt after this date, the three years start from the date of the order being made. If after this date no action has been taken, your home will belong to you.

The official receiver will have these options:

come to an arrangement with you about the property;
sell your home;
apply for an order for sale;
apply for a charge on your home.

This means that you should not be left with the official receiver coming back years after your bankruptcy has ended, wanting to sell your home unless a charge is placed on your property. If a charge has been placed, the official receiver has 12 years to apply for an order for sale.

Other Effects of Bankruptcy

It is an offence to obtain credit in excess of £500 without informing the lender that you are an undischarged bankrupt.
You are unlikely to be able to hold a business bank account, but may be able to obtain a basic personal account. A list of these is available from the Financial Services Authority.
You will have to make arrangements with fuel companies and your phone company for the future supply of services. In effect this means you will have to pay a deposit for future supplies, have a meter installed, or transfer the bills to someone else in your household who is prepared to take responsibility for them.
The court may give an order for you to give payments out of your income in the form of an income payments order (IPO), if it considers you have the means to do so. Your essential expenditure will be taken into consideration when calculating if you are able to contribute anything towards the bankruptcy. Alternatively, the official receiver or trustee can ask you to enter into a written agreement called an income payments arrangement (IPA), which works on a similar basis. In both cases, if you were able to do so, this would generally be for a period of three years. If your circumstances change during this period, you can inform the official receiver.
You cannot be a director of a limited company and will not be able to practise certain professions, e.g. be a solicitor or an accountant.
If the official receiver considers that your conduct has been dishonest or you are to blame in some other way, he or she can ask the court for a bankruptcy restriction order (BRO). In this case, certain restrictions that apply to bankruptcy may be extended for up to 15 years. For further information on BROs, phone us for advice.

However:

if it is the first time you have been bankrupt you will obtain an automatic discharge after 12 months or on 1 April 2005 if you were made bankrupt before 1 April 2004. This is as long as you cooperate with the official receiver while bankrupt;
with the trustee in bankruptcy’s agreement, you can continue to trade, if it is possible for you to do so without using credit. You may be able to keep the tools of your trade and an essential vehicle;
you can continue to pay your mortgage, but will also need to pay any other debts which are secured on your home;
if another person can raise sufficient money to pay the official receiver or your trustee your share of the equity in your house, you need not lose your home.

If you are considering bankruptcy please phone us for advice.

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