Being in debt is stressful enough, but what if your creditor threatens to make you bankrupt! Where do I stand? What can I do? Will they go through with their threat? And Will I lose my home? These are frequent questions that are often asked by individuals who are in this precarious situation. When threatened with this it can cause a lot of distress and worry, at a time when you are worried enough!
In the first instance you need to assess your own personal situation, do you own your own home or are you just renting the property? Is there any equity in your home if you do own it? Do you have any real assets for example a car? These are all things that have to be taken into consideration. After all a creditor is hardly likely to incur a further cost to themselves by filing for your bankruptcy, if they are highly unlikely to receive any money back at all from taking this course of action. It is on very rare occasions that companies do carry out their threat, however HMRC seem to be one of the exceptions to this; in that they do act on their threat regardless of the individual’s situation. The majority of companies however threaten you with bankruptcy in the hope that you will pay them, scare tactics in a sense.
How does a creditor make me bankrupt?
Firstly for a creditor to make you bankrupt, you must owe them in excess of £750, in Scotland it would have to be in excess of £3,000 (although two creditors could combine the debts owed to each to add up to this amount). In England a creditor would, in the first instance, have to issue you with a statutory demand. This is a legal document that says you have 21 days to pay the debt or they will petition for your bankruptcy. If you have a CCJ or money judgement and you have not paid this, then they can also petition. In Scotland a creditor would have to prove your ‘apparent insolvency’ before they could make a petition. They can do this by sending you a charge of payment giving you 14 days to settle the debt, or a statutory demand giving you 21 days. On non-receipt of payment after this you will then receive a ‘warrant to site’ with a date on there for a court hearing. At this court hearing you can state why you do not want the petition for bankruptcy to go ahead, so your view will be heard.
Being threatened with bankruptcy can be very upsetting, and the first thought that comes to everyone’s mind faced with this situation is ‘am I going to lose my home’. If there is equity in your property or you do have any real assets, then some companies may carry out their threat. If there is no equity in the property then quite often you can still keep and live in your home, even if you are made bankrupt. However before all of this there are things you can do before it is too late.
What can I do to prevent a creditor making me bankrupt?
In the first instance talk to the company, it is no use burying your head in the sand until it is too late. Remember they will not want to pay out this money to start the proceedings for Bankruptcy on top of the debt that is already owed to them, therefore they should be reasonable and willing to come to some sort of arrangement or agreement with you. At this point do not offer more than you can afford, agree regular payments over a length of time that you know you will be able to keep to in order to clear the debt. If you fail to meet the payments you will end up back to square one, and they may not be as amicable with you the second time round.
Another option is to try and get the debt down to below the £750 (£3,000 in Scotland) threshold that needs to be owed in order for them to be able to file a petition for bankruptcy. If you can get your debt down to this amount then they cannot legally proceed with it. It is worth doing this for peace of mind too.
What else can i do?
You could also find an alternative way of paying them. This could be in the way of a debt consolidation loan or you could set up an Individual Voluntary Arrangement (IVA). This is similar to bankruptcy, however you will not lose your home or assets. You would normally come to an agreement with your debtors to pay a regular amount weekly or monthly over a five year period. If one or two of your debtors agree to this, then the rest of your debtors are obliged to do so also.
Always seek advice from a good source, for example the Citizens Advice Bureau. They can advise you on the best way forward given your individual circumstances. They can also help you deal with your creditors.
Do I still have to pay the bankruptcy fees?
If the bankruptcy does actually go ahead, it works in exactly the same way as if you had declared yourself bankrupt; except that they pay the fees for it. This all said as stated it is highly unlikely they will proceed and pay these fees, which are currently £920, especially if they are unlikely to get their money back after taking this course of action. Many threaten this just as a way to try to get you to pay them, but they have no intention of proceeding down this path. It does really depend on the company you are dealing with, the amount you owe to them, your own individual personal circumstances, any assets you have and the likelihood of them getting their money back by filing for a petition of bankruptcy against you.