In the United Kingdom, a debtor’s bankruptcy petition is a legal document filed by an individual or business seeking relief from their debts through the bankruptcy process.
This type of petition is usually filed by the debtor themselves and is typically used to initiate a bankruptcy case under the Insolvency Act 1986. In a bankruptcy case, the debtor’s assets are sold to pay off their creditors, and the debtor is discharged from their debts.
On the other hand, a creditor’s petition is a legal document filed by a creditor seeking to have a debtor declared bankrupt. This type of petition is typically filed when a creditor has been unable to collect a debt from the debtor and believes that bankruptcy is the only way to recoup their losses.
A creditor’s petition can be filed under the Insolvency Act 1986, and if granted, it will result in the debtor being declared bankrupt and their assets being sold to pay off their debts. However, a creditor’s petition is less common than a debtor’s petition, as most bankruptcy cases in the UK are initiated by the debtor themselves.
Difference between voluntary and involuntary bankruptcy?
The main difference between voluntary and involuntary bankruptcy is who initiates the process. While voluntary bankruptcy is initiated by the debtor, involuntary bankruptcy is initiated by the creditor.
Voluntary bankruptcy is a process where a debtor files a petition with the court to declare bankruptcy. This type of bankruptcy is typically initiated by individuals or businesses who realize that they are unable to pay their debts and need protection from their creditors. Voluntary bankruptcy allows the debtor to take control of their financial situation and start the process of debt relief.
On the other hand, involuntary bankruptcy is initiated by creditors when they believe that the debtor is not paying their debts intentionally or has become insolvent. Involuntary bankruptcy is often used as a last resort by creditors when other attempts to collect debt have failed.
What is a debtor’s application for bankruptcy?
A debtor’s application for bankruptcy is a legal process that allows an individual or business to initiate bankruptcy proceedings by filing a petition with the court. In this process, the debtor takes control of their financial situation and voluntarily declares that they are unable to pay their debts.
The debtor must provide evidence of their financial situation, including their assets, liabilities, and outstanding debts. Once the debtor’s application is accepted, an automatic stay is put in place, which stops all collection activities by creditors, including lawsuits and wage garnishments. The debtor is then required to attend a meeting of creditors, where they will be questioned about their financial situation
What is a creditor’s bankruptcy petition?
Any creditor who is owed more than £5,000 from an individual can petition for the debtor’s bankruptcy – this is known as a creditor’s petition. In order to petition for a debtor’s bankruptcy:
- the outstanding balance must be a liquidated sum payable immediately or at some point in the future
- the outstanding balance must be an unsecured debt
- it must appear to the creditor that the debtor is unable to make payment or has no reasonable prospect of being able to make payment
What is the creditor’s petition process?
In order to be able to present a bankruptcy petition, the creditor must first either:
- Attempt to recover the debt through an enforcement process. Typically, this is asking High Court Enforcement Officer (HCEO) to enforce a judgment which the HCEO returns without full payment.
- Serve a statutory demand on the debtor in accordance with the Insolvency Act 1986, demanding that the outstanding debt is paid. Then, after 21 days, they need to check that the debt has not been satisfied and that no application has been made to set aside the statutory demand. If the debt is disputed the debtor can make an application to court to have the statutory demand set aside. The court may decide on paper or require the parties to attend a hearing to consider the matter. If the court sets aside the statutory demand, the creditor will not be able to proceed with presenting a bankruptcy petition.
Once these steps have been completed the creditor can then seek to present the bankruptcy petition. Unlike the process for a debtor’s application for bankruptcy, a creditor’s bankruptcy petition will be issued and determined by the court.
The fee for sending the petition to court to be issued is £280. The creditor will also be required to pay the Official Receiver’s deposit of £990. Once the court has issued the bankruptcy petition it will be returned to the creditor to serve on the debtor. The court will also list a hearing to determine whether the debtor should be made bankrupt.
Upon receipt of the sealed petition, the creditor will be required to serve it on the debtor personally. If this cannot be achieved, they will then be required to make an application to court to serve the debtor in a different way, for example by post.
Once the petition has been correctly served the debtor will then need to provide evidence to the court along with confirmation that the debt remains outstanding and then prepare for the court hearing.
At the hearing, unlike the adjudicator, the court can make a variety of orders. They can:
- make the bankruptcy order
- dismiss the bankruptcy petition
- adjourn the hearing to a later date if the court needs more information or if the debtor asks for more time to pay
Due to the amount of stages and requirements on the creditor to ensure all the requirements have been met, a creditor’s petition can take considerably longer and costs substantially more than a debtor’s own application for bankruptcy.
Read more: How to declare bankruptcy if you live abroad
A debtor’s bankruptcy petition and a creditor’s petition are two different ways of initiating the bankruptcy process. A debtor’s bankruptcy petition is filed by the debtor themselves when they are unable to pay their debts and need protection from their creditors. In contrast, a creditor’s petition is filed by a creditor when they believe that the debtor is not paying their debts intentionally or has become insolvent.
The main difference between the two is who initiates the process. A debtor’s bankruptcy petition is a voluntary process initiated by the debtor, while a creditor’s petition is an involuntary process initiated by the creditor. Additionally, the filing requirements and procedures for the two types of petitions may differ.
A debtor’s bankruptcy petition typically requires the debtor to provide information about their financial situation, while a creditor’s petition requires evidence of the debtor’s insolvency. Ultimately, the goal of both types of petitions is to resolve the debtor’s outstanding debts, but they are initiated from different perspectives and with different requirements.
With over three decades of experience in the business and turnaround sector, Steve Jones is one of the founders of Business Insolvency Helpline. With specialist knowledge of Insolvency, Liquidations, Administration, Pre-packs, CVA, MVL, Restructuring Advice and Company investment.