Bankruptcy is the process where an individual is formally declared unable to pay their debts (debtor). Once the debtor is declared bankrupt their assets are liquidated and distributed amongst their creditors. In turn the debtor is released from further liability arising from the debts declared under the bankruptcy.

There are a number of circumstances where an individual might be declared bankrupt. Some debtors might choose to enter bankruptcy voluntarily as a method of avoiding debts (voluntary bankruptcy). Alternatively, a creditor might seek to make a debtor bankrupt (involuntary bankruptcy). However, involuntary bankruptcy is usually a last ditch attempt by creditors at enforcing a debt. This article will focus on involuntary bankruptcy.

As mentioned above, involuntary bankruptcy is usually a last resort for creditors because it is expensive and there is a very likely chance the creditor might not recover the whole of the debt owed to them. However, often just the threat of bankruptcy proceedings is a useful tool to help encourage debtors to engage in meaningful conversation to work out a repayment solution that works for both parties.

Bankruptcy proceedings can be started by a creditor if the following conditions are met:

  1. The debtor must owe more than £5,000.00 and must appear unable to pay the debt owed.
  2. The debt must be immediately due in a liquidated sum and must not be secured, e.g. under charging order.
  3. The creditor must personally serve the debtor with a statutory demand in the prescribed form.

The debtor is able to apply to have the have the statutory demand set aside in limited circumstances. But if the debt remains outstanding after 21 days of service of the statutory demand, the creditor can then present a bankruptcy petition to the Court. Again, the debtor has a second opportunity to challenge the petition at this stage. Failing which, a hearing will be scheduled to take place and will determine whether the debtor will be made bankrupt.

If you are owed money and need advice on the options available to you in recovering that money, or if you are being pursued for money owed by you, the Dispute Resolution Team at Mewies Solicitors are on hand to provide you with expert guidance and advice on the options available to you.

Contact us on 01756 799000 or info@mewiessolicitors.co.uk