Will Creditors make you Bankrupt?

James Falla

• 28 Oct 2021

It is unlikely that banking creditors will make you bankrupt. However it could happen if you owe money to HMRC or have trade debts.

Included in this article:

• Are creditors likely to make you Bankrupt?
• What if you are a home owner?
• What if you owe money to HMRC?
• Is it best to make yourself bankrupt?

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Are your Creditors likely to make you Bankrupt?

Anyone to whom you owe at least £5000 can petition for your bankruptcy if you are not paying them. This figure was increased from £750 on the 1st October 2015. However it is unlikely that any of your creditors will do this (unless the are HMRC).

If they make you bankrupt they lose control of the collection process. All responsibility for this is then passed to the Official Receiver (OR). Even if money is collected from you the OR will take significant fees leaving little or nothing for your creditors.

Given this they usually have a better chance of getting their money back using other methods. These may include issuing a CCJ against you and then applying for an Attachment of Earnings or a Charge against your property.

If you owe money to an individual, they might petition for your bankruptcy to cause you inconvenience rather than to collect their debt.

Is it more likely you will be Made Bankrupt if you are a Home Owner?

If you are a home owner it is still extremely unlikely that one of your creditors will try to make you bankrupt. The reason 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 (or Trustee in Bankruptcy) 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.

If you are struggling to pay an IVA you may be worried that you will be made bankrupt if it fails. In reality you are likely to have to make yourself bankrupt.

What if you owe Money to HMRC?

The majority of creditors will not want to make you bankrupt as it is simply not in their financial interest. However HMRC may take a different view.

Clearly they are interested in the recovery of overdue Tax or VAT debts. However they are also concerned about preventing your debts becoming any worse.

Forcing you into bankruptcy may be a good way of achieving this.

Trade creditors such as building merchants also have a reputation for issuing bankruptcy petitions. If you are struggling to pay debts owed to the likes of Travis Perkins you should get expert advice.

Owe money to HMRC or have trade debts? Give us a call. We can advise on whether you are likely to be made bankrupt and your options (0800 044 3194).

Is it best to Make Yourself Bankrupt?

Because few if any of your creditors will actually make you bankrupt there is normally no point in waiting for them to do it. If you have decided it is the right solution for you it is usually better to make the application yourself.

The downside is you will have to pay the Application 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 or a Charge against your home.

If a CCJ has already been issued you may need to act quickly to prevent further action against you or your home.