The Bankruptcy Process

A creditor is required to hand deliver a statutory demand and then a bankruptcy petition In order bankrupt a person. A creditor can commence bankruptcy proceedings if more than £750 is owed to them. The debtor, the person who the creditor is looking to make bankrupt, will be prevented from dealing with any of their assets, including selling or releasing equity from their properties as soon as the bankruptcy petition is filed at court.  This is because restrictions shall appear against the debtors’ properties at the Land Registry.  If a bankruptcy order is then made, the bankrupt automatically loses their assets, including their share of the family home and any other properties they have a share in.

The assets then pass to the State, namely the Official Receiver at the Insolvency Service before a Trustee in Bankruptcy is appointed.  The Trustee usually incurs substantial costs in investigating the bankrupt’s financial affairs and normally instructs solicitors to assist in selling the bankrupt’s properties.  The Trustee and his solicitor will firstly deduct their professional time costs from any proceeds of sale before making payment to the bankrupt’s creditors, if there is anything left over.  However, a bankrupt is able to make an application to cancel, or “annul” the bankruptcy order and such applications should be made very quickly to stop the Trustee incurring costs.


Statutory Demands

An application to set aside a Statutory Demand must be made within 18 days of the Statutory Demand being served.   If an application to set aside the Demand is made, the court shall then make a decision whether there are reasonable prospects of defending the demand.  If the court believes that this application has merits, it shall set a hearing date and if not, the creditor is allowed to present a bankruptcy petition.

We work closely with clients in disputing debts. We regularly set aside Statutory Demands and any prior court judgments. If the court allows the application to set aside the Statutory Demand, then this brings the bankruptcy process to an end.  A successful application to have the statutory demand set aside should result in an order that the creditor pay the legal costs.


Bankruptcy Petitions

The bankruptcy petition records a court hearing date as to when the Debtor should attend court to defend the bankruptcy.  Our firm specialises in defending  bankruptcy petitions.  We raise technical legal defences to dismiss the bankruptcy petition.   We regularly represent clients at bankruptcy hearings and frequently defend bankruptcy petitions presented by the HM Revenue & Customs for unpaid tax.  We have excellent experience in negotiating settlements and buying our clients time to re-organise their finances and sometimes work with specialist lenders. We are often instructed at short notice to make an application to request an adjournment of the bankruptcy hearing to enable our clients to properly prepare their case.


Individual Voluntary Arrangements (IVAs)

We advise on whether to enter into an Individual Voluntary Arrangement (IVA) to avoid being declared bankrupt.  An IVA can be entered into pre or post-bankruptcy, and if entered into post-bankruptcy, it has the effect of annulling the bankruptcy order, although certain time limits apply in making these applications.  In order to succeed, 75% of the creditors in value must agree to the proposals set out in the IVA.  An IVA usually lasts for 5 years and states the payments to be made to all of the creditors.  The same percentage sum must be offered to all of the “unsecured creditors” ie those creditors who do not have a charge on property.  Those creditors who have charges are known as “secured creditors”. An IVA does however not affect the rights of “secured creditors” who may still proceed to sell a property to be paid their debt.  A person looking to enter into an IVA is required to make full disclosure of their finances and in the event the payment obligations in the IVA are not met, the supervisor of the IVA will petition for bankruptcy to thereafter become the Trustee in Bankruptcy.  This person will thus have an in depth insight into the bankrupt’s financial affairs.

There have been an increased number of bankruptcy petitions being presented by supervisors of IVAs in recent years.  We therefore often advise our clients not to enter into an IVA but to simply enter into an informal settlement agreement with their creditors which can be more beneficial as (a) creditors are not paid the same percentage amount and (b) supervisors’ fees are avoided.   If a person enters into an IVA, their name also appears on the register of IVAs which is a further disadvantage.  We advise on the suitability of IVAs and on bringing claims against IVA companies and supervisors for having mis sold IVAs and against IVA supervisors for wrongly holding on to payment protection insurance (PPI) monies.

We work with a panel of our preferred insolvency practitioners in the event an IVA is suitable and regularly monitor their performance.