Bankruptcy Petition
Once I heard a Stingy husband telling his Wife, Oh Dear, Please Stop being so extravagant otherwise I will become Bankrupt. Now what does this term Bankruptcy mean I Wondered. Bankruptcy is a State where the debtor is legally unable to pay his dues to the Creditor on due date. This state of Bankruptcy petition can be invoked either by the debtor or Creditor. But Generally in most of the cases the state of Bankruptcy is invoked by the debtor/debtor Organization. Now, there are two types of Bankruptcy, namely (a) Voluntary Bankruptcy and (b) Involuntary Bankruptcy. - Where the debtor files a petition claiming his inability to pay his dues, it is called Voluntary Bankruptcy and the second case is when the Creditor himself files a Bankruptcy petition against the debtor.
But one has to first decide if at all filing a Bankruptcy petition was required. A Solicitor or an Accountant or an Insolvency Practitioner can also be of great help in this regard. Because if the debtor does not have any standard income or does not anticipate a good standard of living in future also, then the debtor is said to be Judgment Proof. In such case, the Creditor will not be able to get anything even if the debtor is sued or in the event of a Court Judgment being passed. So in such case filing for Bankruptcy is not advisable. Here are some of preferred alternatives to Bankruptcy: -1) IVA option 2) Administration Orders.
Now what is this IVA An IVA is an individual Voluntary arrangement between the creditor and debtor to repay the debt in terms that are agreeable to both. Here the Insolvency Practitioner appointed by the Court prepares your repayment plan over a period of 5 years after arranging a meeting with the creditors. If the terms and conditions are agreed to by the Creditor/s, then the interest rate and charges are frozen for a period of 5 years. And any unpaid debt at the end of the term is written off.
One advantage of IVA over Bankruptcy is that in case of IVA the control over assets remains with the debtor while in case of Bankruptcy the control is passed on to the Official receiver.
And now about the administration Order. If any of the Creditors have a Judgment order against the debtor and if the outstanding debt is not more than GBP 5000, then the county court can pass an administration order. Here the debtor pays the money in installments to the court, which then pays off the amount to the creditor. During execution of this administration order, the creditor cannot take any legal action without the courts consent against the debtor. Also the debtor is freed from payment of any interest. An amount equivalent the court fee remitted by the debtor is deducted from the outstanding debt amount. Oh! This option is marvelous, I told myself.
Filing for Bankruptcy petition has its own advantages and disadvantages. First let us look at filing a Bankruptcy petition from Creditors limelight.
Only under below mentioned circumstances can a Creditor file a Bankruptcy Petition, namely
1.The Outstanding amount is at least GBP 750.
2.When the debt is unsecured and the debtor appears Unable to Pay a part of it.
In all the above-mentioned cases the Proceedings take place in the debtors local County that has Bankruptcy Jurisdiction. All that is fine. But what documentary evidence does the Creditor have to ensure that the Underlying transaction between the debtor and himself satisfies the above-mentioned criteria. The answer to this is the Statutory Demand served by the Creditor to the Debtor (or) proof submitted by Creditor that ensures that the Creditor was Unable to recover the amount by execution of goods.
A Statutory Demand is usually served in order to hasten the repayment process. Once a statutory demand is served the debtor has to mandatory opted for any of the following: -
(a) To repay the debt (or)
(b) To make the debt a secured one (or)
(c) To repay the debt in installments agreeable by the creditor. If the debtor doesnt take any of the above-mentioned steps, then the creditor has the right to claim for Debtors Bankruptcy.
Thus filing for Bankruptcy allows for thorough investigation of debtors affairs.
And now let us look at filing Bankruptcy Petition from Debtors Point
of View .
There are many negative implications once a person files for Bankruptcy. Some of them are: -
1) The debtor loses Control over his assets.
2) The debtor cannot practice as a Lawyer/Chartered Accountant
3) The debtor cannot act as a Company director, cannot become a Member of Parliament and can be publicly examined in the Court.
In Toto, Bankruptcy creates a very negative impression about a Person in the Society.
Bankruptcy can be filed under chapter 7 and chapter 13, Jest of which is given below.
Chapter 7 is called Liquidation Bankruptcy which lasts for 3-6 Months. Here the Bankruptcy Court discharges you of your debt by taking custody of your Property that are not exempted from collection, by selling the same and distributing the proceeds to Creditor. Chapter 13 is called Repayment Bankruptcy where repayment is done over a Period of time through ones own income, generally between 3 to 5 years.
Chapter 13 is used is USA and administered through courts while IVA is used for an English debt.
Like the Creditor the debtor must also file a Bankruptcy petition in a County Court
Where he resides. Then the debtor must remit the Court fee and deposit towards the administration of Order. Form 6.27 and 6.28 must also be filled and submitted to the Court. The Court then arranges for a District Judge to attend to the case. Generally such
Cases do not have any hearing but where hearing is required the debtor is expected to be present.
During hearing, the Court refers the case to an Insolvency Practitioner to find out if IVA is applicable. However IVA can be used only under following Conditions: -
(a)Debts are not more than GBP 20,000. (b) Assets are at least GBP 2000 (c) Debtor has not been subject to any Bankruptcy proceedings in the last five years.
Anyhow if the debtor does not want IVA, then the Court must be informed accordingly.
Again if IVA is not applicable, then the court either
Issue a Bankruptcy order
(Or)
Dismiss the petition
(Or)
Adjourn the Petition
(Or)
Stay the petition accordingly.
Thereafter the Procedure followed is same as that of Creditors petition.
Thus filing for Bankruptcy gives the debtor relative peace of mind and automatic discharge after a year. One more advantage is that automatic stay is invoked once a person files for Bankruptcy. This protects him against any case filed against him by the Creditor / Creditor agency. This gives him some grace time to settle his dues and thus defers the ill effects of non-payment of dues being shadowed on the debtor. [E.g. Nonpayment of Utility Bills in time].
Though Bankruptcy is generally a Bane, One can convert it into a boon by taking right decision at the right time.
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