Update from Adina-Leigh Collins, Solicitor, Litigation department
What is a Bankruptcy Petition?
A bankruptcy petition, put simply, is a petition to the Court to ask for a bankruptcy order against an individual and is usually presented on the grounds that the debtor cannot pay his/her debts. A bankruptcy order can result in the debtor’s assets being sold in order to repay outstanding creditors.
It often follows a statutory demand if you have not complied with that or otherwise sought to set it aside.
Can anyone petition for a debt?
No. A bankruptcy petition can only be issued on an individual or sole trader where:
- The debt is for a sum of £5,000 or more;
- The debt is for a liquidated sum (that is, it for a specific and final sum – for example, an unpaid invoice);
- The debt is a genuine debt that is not disputed;
- The debt is not otherwise secured against an asset, for example, secured against a house; or
- There is no outstanding application to set aside the statutory demand.
I have been served with a Bankruptcy Petition, what do I do?
- First check as to when and how the petition was served on you and when the bankruptcy petition hearing has been listed. This is crucial to determining if you have been given sufficient notice of the petition hearing – which must be at least 14 days.
- Check the content of the petition and that it contains the information as required by the Insolvency Rules. Ensure it correctly identifies the debt or provides sufficient information to enable you to identify if the debt is correct or not.
- Check if the petition refers to a statutory demand having been served on you. Did you receive the demand? If you did not receive a statutory demand then, subject to whether the debt is disputed or not, you may wish to ask for evidence of service of the demand (if not included in the petition). If you did receive the demand, did you apply to set it aside and have not yet heard from the Court? A petition generally ought not to be issued where there is an outstanding application setting aside the statutory demand.
- Check the debt that is alleged as being owed by you; do you dispute it? What evidence do you have?
- If it is disputed, is all of it disputed or only some of it?
If you are able to pay the petitioning debt or part of the petition debt or wish to negotiate payments terms and/or an adjournment for time to pay, you should obtain legal assistance. Once a petition is presented, it is considered a “class action” and will affect all other unsecured creditors.
Therefore, it is not necessarily as straightforward to ending the matter by simply paying the debt to avoid a court hearing. Even if the parties agree a settlement, the Court will make the final decision at the hearing, this is to enable any other unsecured creditors the opportunity to attend the hearing as well. Further, the petitioner’s solicitors may insist upon either a validation order being sought at the hearing to permit the payment from you, or, more likely, may require the funds to be paid by a third party. This is because of restrictions in place once the petition is presented that are to prevent you from disposing of your assets, including cash.
What if I dispute the debt?
If you have been served with a petition, it is very important that you do not ignore it. If you do not engage and do not attend the hearing, a bankruptcy order will be made in your absence and will take immediate effect. See our bankruptcy pages further for details on the effect of a bankruptcy order.
If the debt is substantially disputed or there are other issues, for example, you did not receive a statutory demand as may be alleged, then it is crucial that you put this in writing to the creditor, along with any evidence you have supporting this. Be prepared that the creditor may not agree or respond, therefore, you should allow sufficient time to file your notice to oppose with your evidence to the Court before the hearing. Your notice to oppose should be filed 5 clear days (business days) before the hearing. However, if your evidence is filed after this, you will not necessarily be prevented from making submissions to the Court. It would, however, be advisable not to miss this deadline.
Your notice to oppose is very important to get right as this is your fundamental evidence for the Court to understand your position at the first hearing. Therefore, you must file suitable evidence that supports your case with your notice to oppose.
At the hearing the Court may:
- Dismiss the petition – which would end proceedings;
- Grant the bankruptcy order – which would make you bankrupt;
- Adjourn the hearing to give you time to pay or seek legal advice;
- Adjourn the hearing either with directions for the parties to file further evidence or for a further hearing to decide directions; or
- Make such other order as the Court thinks fit.
What happens if I do not dispute the debt?
If you do not dispute the debt but need time to pay, it may still be possible to agree a payment plan with the petitioner to avoid a petition being issued against you. It would be advisable to get in touch with the petitioner as soon as possible to agree terms, depending on the specific terms, the petitioner may not agree to dismiss the petition but instead adjourn it for a period of time to enable you to make full payment in that time.
What if I have lots of other debts?
It may be sensible for you to seek expert advice from an insolvency practitioner to discuss whether you are able to enter into an Individual Voluntary Arrangement (IVA) or some other debt management plan. We would be happy to recommend an insolvency practitioner or other regulated debt manager/adviser to assist you.
If you have been served with a demand or bankruptcy petition and would like advice on your position and legal options, then please do not hesitate to email me or contact the Insolvency team on 020 8308 3610.