Are you owed money by someone who is in dire financial straits? If so, you are not alone. In the first quarter of 2016, more than 20,000 people were declared bankrupt in Britain. That means there are a lot of unsecured creditors wondering if they will ever see their money again.
So what steps can a creditor of a bankrupt take to retrieve all, or at least part, of what is owed to them?
Scenario One – the debtor is not yet bankrupt
Applying to make a person bankrupt
If a person owes you £5,000 or more, he / she doesn’t appear to be able to repay you and they have not applied to overturn your statutory demand, then you can apply to make them bankrupt. This can be a complicated process, and involves sending a bankruptcy petition to court.
Making a person bankrupt is not an action to be taken lightly. Before applying for bankruptcy, you must first:
- Issue a statutory demand
- If you have a court judgment in your favour, then you should first try enforcing that judgment through bailiffs or another enforcement process
It is highly advisable that you engage an experienced solicitor to help you file a bankruptcy petition, especially given that it could cost you around £1,000 or more to complete the process and a court hearing before a district judge may be required.
Scenario Two – the debtor is already bankrupt
If a person is made bankrupt the court will appoint an Official Receiver to administer the bankrupt’s estate.
Within twelve weeks of the bankruptcy order, the Official Receiver must decide whether to call a meeting of creditors to appoint a licensed insolvency practitioner to act as Trustee*.
Creditors are classed as either secured or unsecured. Secured creditors, such as banks or finance companies, have usually made a loan and secured it against an asset, (i.e. property or a vehicle). These assets can be sold to recover all or part of the debt. Secured creditors are paid first.
Unsecured creditors are more vulnerable. After secured creditors in a bankruptcy are paid, the trustee will make payments to other parties in the following order of priority:
- Fees and charges of the bankruptcy
- Debts to preferential creditors, such as wages and debts owed to the Redundancy Payments Service, (if the person is a sole trader or partner in a business)
- All unsecured creditors
- Any interest payable on debts
How unsecured creditors are paid in a bankruptcy
Most of you will be classified as unsecured creditors. Unsecured creditors are all treated equally. They are paid a percentage of their total claim taken from the proportion of the balance of the bankrupt’s estate after costs, preferential and secured creditors have all been paid. Sometimes unsecured creditors getting very little or nothing – Sometimes, they get their money or a significant proportion of it back – It is a risk but as they say, nothing ventured nothing gained.
*This article assumes that a Trustee has been appointed
Submitting a claim to the Trustee
The trustee will write to all creditors of the bankrupt and ask them to submit their claim in writing by a certain date. To demonstrate the validity of your claim, make sure you include supporting documents such as invoices, statements, emails and other correspondence between you and the bankrupt, especially anything where the bankrupt admits the debt to you.
If you have not been contacted and you believe that the person who owes you money has been declared bankrupt, you can run a search through the Individual Insolvency Register, the public notices of the Gazette or call the Insolvency Enquiry Line on 0300 678 0015.
Once the trustee has your claim and supporting documents, he or she will make a decision on whether your claim is valid. This is not automatic; you may be asked to provide further evidence to prove your position. The trustee can then approve your claim in part or in full, or reject it completely.
All known creditors will receive a report on the assets and liabilities of the bankrupt and details as to why they went bust. It is imperative you inform the trustee of any change of address, as you may not hear back from them for some time. It can take months or even years to sell and distribute assets from a bankruptcy, so patience on your part will be required.
Steps unsecured creditors can take to enhance their chances of recovering monies owed
It may seem like unsecured creditors have little say in a bankruptcy proceeding and to a certain extent this is true. However, the key to success is to act collectively. Unsecured creditors can form a Creditors’ Committee. There is strength in numbers. The committee can then collaborate together to exchange information and inform the trustee of any assets or income that they believe has not been disclosed by the bankrupt. It also helps with the cost of pursuing the bankrupt as your expenses are shared.
A creditors’ committee cannot comprise of more than five individuals. The committee will receive reports from the trustee and may meet periodically. It also assists the trustee, approves his or her remuneration and sanctions the exercise of certain powers.
In Summary
Unsecured creditors can find themselves in a frustrating waiting game even if their claim against a bankrupt is approved. Take the right advice from the right people. We have helped clients set up numerous Creditors’ Committees and alleviated some of the irritation and resentment, reduced costs and put these clients in a more powerful, prominent position.
Saracens Solicitors is a multi-service law firm based in London’s West End. We have dedicated and highly experienced insolvency law and disputes resolution specialists who can assist you with any questions you have regarding making a claim against a bankrupt estate. For more information, please call our office on 020 3588 3500.