Will Creditors make you Bankrupt?
If you are struggling with debt you may be worried about whether any of the people you owe money to will make you Bankrupt. Alternatively you might have decided that Bankruptcy is the right solution for you. If so should you simply wait for one of your creditors to make you bankrupt? Or is it better to start the process yourself?
- We explain if any of your creditors are likely to make you Bankrupt
- Is being forced to go bankrupt more likely if you are a home owner?
- Find out if it is better to go bankrupt yourself rather than waiting.
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Are Creditors likely to make you Bankrupt?
If you are not repaying them anyone to whom you owe at least £5000 can apply to make you bankrupt. This figure was increased from £750 on the 1st October 2015. However it is unlikely that any of your creditors will take this action. The reason for this is that they normally have more chance of getting back their money using other collection methods.
The problem with Bankruptcy for your creditors is that all responsibility for debt collection is passed to the Official Receiver (OR). The OR will take a significant amount of any money they collect from you to cover their own fees. As such even if you are forced to sell assets your creditors normally get back little if any of the money they are owed.
Given this situation it is far more likely that creditors will use alternative options to try and recover their debt. These may include issuing a County Court Judgment (CCJ) against you. Then applying for an attachment of earnings or a charging order against your property.
Will a creditor make you Bankrupt if you are a Home Owner?
If you are a home owner it is still extremely unlikely that one of your creditors will apply to make you bankrupt. The reason for this is that even then there is still little chance that their debt would be repaid unless there is significant equity in your property.
This is because any cash released from your property will not simply be paid to the creditor who made you bankrupt. Their costs would be paid but then the Official Receiver’s fees would be taken. These could total £1000s. After this any cash remaining is shared between all your creditors. This makes the likelihood of the petitioning creditor actually recovering all of their debt very small.
BE Tip: If you are currently struggling to pay an Individual Voluntary Arrangement (IVA) you may be worried that you will be made bankrupt if it fails. In reality your creditors will not normally want this. They know they are more likely to recover what they are owed by restarting the standard debt collection process.
Should you make yourself Bankrupt?
Because few if any of your creditors will want to make you bankrupt there is normally no point in waiting for them to do it. If you have decided that Bankruptcy is the right solution for you it is usually better to start the process yourself. This means that you will have to pay the Court Fee. However you are then protected from other collection actions that your creditors are likely to take.
The longer you wait before you go bankrupt the greater the risk that one of your creditors will take different action against. They could successfully apply for an attachment of earnings. Alternatively they could get a Charge against your home which would secure their debt. After that it cannot longer be included if you do go bankrupt.
Will any creditors apply to make you Bankrupt?
The majority of your creditors will not want to make you bankrupt as it is simply not in their financial interests. However there are some creditors who might take a different view. They may decide to force you into bankruptcy for other reasons.
The main creditor in this category is HMRC. HMRC are interested in the recovery of any Tax or VAT debt that you owe. However they are also concerned about preventing your debt situation becoming any worse. Forcing you into bankruptcy may help in this regard.
In addition to HMRC the other type of creditor who might decide to make you bankrupt is any individual you own money to. This could be a landlord, business partner or friend. Their decision may also not be purely financial. They may decide to petition for your bankruptcy simply because they want to cause you the maximum possible inconvenience.
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