What is a Bankruptcy Petition?
A bankruptcy petition is a legal process initiated to declare an individual bankrupt, often initiated by a creditor of that individual. If a bankruptcy order is made against the individual debtor by the court, the debtor’s assets may be liquidated to pay, or part-pay, creditors. A trustee is appointed to oversee the bankruptcy estate and make distributions to creditors.
Bankruptcy proceedings can be complex, so it is important that you seek legal advice from an experienced solicitor if you wish to issue a bankruptcy petition or, if you wish to dispute a bankruptcy petition that has been issued against you by a creditor.
Conditions for Granting a Bankruptcy Order
Certain conditions laid out under Section 271(1) of the Insolvency Act 1986 must be met before the court will grant a Bankruptcy Order. The conditions include:
- Debt threshold: The debtor must owe a minimum amount of unsecured debt. The threshold set by the Insolvency Rules is £5,000.
- Failure to satisfy a statutory demand: The debtor must have failed to comply with a statutory demand, or failed to have the statutory demand set aside.
- No agreement to settle the debt: The debtor must have failed to reach an agreement with the creditor to settle the debt. Alternatively, the debtor must have failed to secure a stay of execution on the creditor’s petition.
- Inability to pay debts: The court must be satisfied that the debtor is unable to pay their debts. This insolvency requirement is a fundamental criterion for granting a bankruptcy order.
- Provable debt: The debt must be one that is provable in bankruptcy. Certain types of debts may not qualify, and the Insolvency Act specifies the types of debts that are admissible.
- No pending application for an Individual Voluntary Arrangement (IVA): The court may consider whether there is a pending application for an Individual Voluntary Arrangement (IVA). If an IVA proposal is already in progress, the court might take that into account.
Issuing a Bankruptcy Petition
The process for presenting a bankruptcy petition against an individual involves several steps. A general overview on the process is outlined below; however, it is always a good idea to seek legal advice for specific guidance tailored to your situation.
- Send a statutory demand: Before filing a creditor’s bankruptcy petition, you should send a formal demand for payment to the debtor using a statutory demand form, often the Form SD2, which can be found here. The statutory demand gives the debtor 21 days to pay the debt or come to a satisfactory arrangement.
- Non-compliance with statutory demand: If the debtor fails to comply with the statutory demand (i.e., doesn’t pay the debt or come to an arrangement), you can proceed to file and serve a bankruptcy petition.
- Prepare the bankruptcy petition: Obtain and complete the appropriate bankruptcy petition forms. These can be obtained from the government’s website or your local county court. Alternatively a solicitor can prepare the document for you. You will need to provide details about the debt claimed. The bankruptcy petition must contain a statement of truth, verifying that the information provided is accurate.
- File the petition: You must file the bankruptcy petition with the appropriate court. You will need to pay the necessary court fees and the official receiver’s deposit.
- Serve the petition: The bankruptcy petition must be served on the debtor. The debtor should be personally served with a copy of the sealed bankruptcy petition.
- Bankruptcy order hearing: At the time the court issues a bankruptcy petition, it will fix a hearing date for the petition. At the hearing, the court will determine whether a bankruptcy order should be made, although often a petitioning creditor will seek to adjourn the hearing rather than seek a bankruptcy order. There are procedural requirements ahead of each hearing that must be followed. If the debtor wishes to dispute the bankruptcy petition, they must notify the Court at least 7 days before the date of the hearing.
How can South Bank Legal assist with bankruptcy petitions?
If you are a secured or unsecured creditor, our commercial debt recovery solicitors can guide you through the process of realising your claims against individual debtors using the statutory demand and bankruptcy petition processes..
If you are an individual, such as a company director facing possible personal liability, our dispute resolution solicitors will mount the strongest possible defence on your behalf whilst giving you pragmatic and commercially aware advice.
Our commercial law solicitors advise on:
- company administration
- liquidation (winding up)
- individual bankruptcy
- statutory demands as a means of debt recovery
- setting aside statutory demands
- winding up petitions and bankruptcy petitions
- validation orders
- pursuing and defending directors in claims for wrongful trading
- pre pack administration sales
- transactions at an undervalue
- petitions to wind up companies on the just and equitable ground under section 122(g) of the Insolvency Act 1986
- provision of information to liquidators under section 235 of the Insolvency Act 1986
For a confidential discussion with South Bank Legal, please get in touch using the form below or call us on 02035765179..