How does someone become bankrupt? Under UK Bankruptcy law, there are 3 ways.
The 3 routes to Bankruptcy.
- Creditor application to the court (Creditor Petition).
- Debtor application to the court, ie applying for your own bankruptcy (Debtor Petition).
- IVA Supervisor application to the court in the case where the debtor has defaulted on the IVA and alternative arrangement can’t be agreed.
Petitioning one’s own bankruptcy requires the debtor to complete a bankruptcy petition form (called form 6.27) and a statement of affairs form (called form 6.28).
Advice on Completing Statement of Affairs form.
The Statement of Affairs form requires detailed information, including valuation of assets which may not be know without seeking professional help. Information here is in addition the Official Statement of Affairs Guidance Leaflet as provided by the Insolvency Service.
- Q1.14 does not required details of informal negotiation attempts with creditors.
Q1.15 requires details of impeding court action, including magistrate courts.
- Section is only relevant to those self employed at some point in the past 2 years.
- Section 3 is about value of assets. Approximate values only should be given, based on sale at auction, not what they we cost to replace from new.
- Section 5 asks for details of past and present bank accounts. Any money in these accounts should be withdrawn prior to the bankruptcy application. These accounts will be frozen and provisions need to be made to allow for payment essential living expenses.
- Section 6 is about employment and income. Include only regular income and that of other household members as this impacts how much is needed to maintain basic domestic needs. Include all state benefits entering the household, even though the claimant is not the person petitioning for bankruptcy.
- Section 7 includes a standard list of household and personal outgoings. Details of all outgoings should be detailed in addition to the standard list.
- Section 8 concerns property. Those applying for bankruptcy should be aware that in the case of owner-occupation, where the property is solely in spouses name, then the applicant may have a claim on part of the property, therefore this will be considered as an asset in the bankruptcy. Specific professional advice should be sort on this matter.
- Section 9 concerns property sold in the past 5 years. If it is considered that the asset was disposed of a less than its true value, the Trustee has the option to reverse the transaction.
- Section 10 covers details of dependant children, spouse/partner and other household members. This is to be taken into account by the Trustee when deciding value of income payment orders (payments from income the bankrupt is required to pay until discharge from bankruptcy.
- Section 11 covers reasons for bankruptcy. Details of when difficulties when first experience and the root cause the the problems are required. Extreme care must to taken in completing this section as instrumentation of the facts may leads to an Bankruptcy Restriction Order.
For residents of England and Wales, both forms are to be completed and presented to the most local court with bankruptcy jurisdiction. For those not living or domiciled in England or Wales, the forms are to be presented to the High Court in London.
Court fees of £150 and a deposit of £325 must be paid by the debtor at this point. Court fees can be waived when the debtor in on benefits and total income does not exceed £15,050 per year. Also, the fee can be waived if undue financial hardship can be proven. Fee wavier is by application via form ex160.
Depending on local practices a hearing may be immediate, later same day or by appointment at a later date.
The Court may refer the case to an Insolvency Practioner in the case where the possibility of an IVA being be more appropriate course of action needs consideration.
For a bankruptcy petition to be presented to the court, 3 conditions must be satisfied.
- The debtor must be domiciled or resident in England/Wales or be active in business in England or Wales, on the date of the petition, or at any time in the previous 3 years.
- The debt must be at least £750 to the creditor petitioning for bankruptcy.
- The debtor must have not realistic ability to repay the debt, or refusing to pay the debt. This is proven by the debt being served with a statutory demand, which has not been set aside or complied to.
The 4 types of Creditor Petition.
- Failure to comply with a statutory demand, debts payment currently due/overdue.
- Failure to comply with a statutory demand, debts payment due in the future.
- A court order execution returns unsatisfied. (eg bailiffs were not able to seize items of value)
- Default in connection with an IVA.
2 or more creditors may jointly petition.
Secured creditors may petition for the part of the debt this is not secured, or risk forfeiting their security.
The creditor’s petition must state:
- The amount owed, and if interest is owed how it has been calculated and the justification for this.
- That the debt is for a liquidated sum payable now or at a specified future date and that the debtors has no realistic chance of making payment on time.
- That the debt is unsecured.
If the petition is based upon a Statutory demand, then only that debt, plus interest accrued since the date of the demand was issued can be included.
If the petition is based upon an unsatisfied execution of a previous court order, then full details must be given including the value of any sum rasied by the Court’s sheriffs or Bailiffs. It is not enough the bailiffs visited the a property and were unable to gain access, they would have to had been refused access.
IVA Supervisors’ Petition.
If you are currently within an IVA, your supervisor may petition the for your bankruptcy on the grounds that:
- You supplied false of misleading information on which the arrangement is based.
- You have failed to maintain the terms to the arrangement.
In this case, the IVA Supervisors can become the Trustee in the bankruptcy.
Issue of the Bankruptcy Petition
A Bankruptcy Petition must be served in person. A Bankruptcy order may still be prevented but you must give at least 7 days notice of your intention to oppose it. You may not use any reason for which a ruling has already been made against, unless there has been a change in circumstances.
What To Do Next
If you are consider petitioning for you own bankruptcy, the you must also consider whether a IVA is a better alternative for your circumstances. This is especially the case if you own your home or have other high value assets to want to keep.
CALL US or submit the INSTANT ADVICE form for Immediate Free Advice.