Bankruptcy Petitions: Understanding the Process

A bankruptcy petition is a legal document filed by a debtor, either by a voluntary arrangement or involuntarily, to initiate the bankruptcy process. It marks the beginning of a structured legal proceeding aimed at resolving financial distress and distributing assets equitably among creditors.

The decision to file and present bankruptcy petitions is often a difficult one, driven by financial hardship, insolvency, or the inability to meet debt obligations. While the notion of bankruptcy may carry negative connotations, it is designed to provide individuals and businesses with a fresh start and a chance to regain financial stability.

What is a statutory demand?

A statutory demand is a formal written request for payment of a debt owed by an individual or a business. It is a pre-legal procedure often used by creditors to demonstrate that a debt is due and payable. The statutory demand is governed by the Insolvency Act 1986 and serves as a precursor to more serious court action, such as bankruptcy proceedings.

Generally, statutory demands are used for debts exceeding a minimum threshold of £5,000. The debtor is given a strict timeframe (usually 21 days) to either pay the debt in full or reach an agreement with the creditor to settle the amount owed.

If the debtor fails to pay or reach an agreement, the creditor may use the non-compliance as evidence of the debtor’s insolvency when seeking a bankruptcy order from the court.

Upon receiving a statutory demand, the debtor has several options, including paying the debt in full, negotiating a settlement, or applying to set aside the demand if there are valid grounds.

Statutory demands are typically used for undisputed debts. If the debtor disputes the debt, other legal avenues may be more appropriate.

Issuing bankruptcy petitions

If attempts to collect a debt from an individual have proven unsuccessful, initiating a bankruptcy petition against the debtor may be a recourse. To issue a bankruptcy petition against a debtor, the following steps must be undertaken:

  1. The bankruptcy petition must contain the requisite information as stipulated by rules 10.7, 10.8, and 10.9 of the Insolvency Rules 2016 concerning a creditor’s petition.
  2. A thorough search must be conducted to determine whether any other petitions have been filed against the debtor in the past 18 months, and a certificate verifying this must be endorsed on the petition. These searches can be conducted at the County Court or the Royal Courts of Justice if the petition is presented in London.
  3. The petition must be authenticated with a Statement of Truth.
  4. The petition must be submitted to the appropriate court with the correct number of copies, accompanied by the Official Receiver’s deposit of £990 and a court fee of £280.
  5. The court will affix its seal to the bankruptcy petition and assign it a hearing date.
  6. The Land Charges Department will be notified by the court of the issuance of the petition, and it will be recorded in the public register.
  7. The court will provide the necessary documents serve a bankruptcy petition on the debtor.

A bankruptcy petition must be personally served on the debtor at least 14 days before the date of the hearing.

Can bankruptcy petitions be challenged?

Once a petition has been issued, it can be challenged. To challenge a bankruptcy petition, the business must file an application with the court. Seeking legal advice is crucial during this process to ensure the proper documentation is submitted and the grounds for challenging the petition are effectively presented.

The business typically has a limited time, often within 18 days from the date of service, or 7 days before the hearing, to apply to the court to set aside the bankruptcy petition before the scheduled hearing. Swift action to file with the court is essential to meet legal deadlines.

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