Solvent Bankrupts – a very expensive lesson to learn
22 November 2018: In our Coventry office we have recently been dealing with three unrelated bankruptcies in which the bankrupts are solvent (assets greater than liabilities). We cannot be sure if there has been a recent increase in similar cases or if it just merely a coincidence that these three matters arose around the same time. By definition, a bankrupt is someone who is declared in court as being unable to pay their debts. Therefore, you would be excused for assuming that someone who has been declared bankrupt has no significant assets or indeed is insolvent. However, this is not always the case.
Two of the cases we have been dealing with are very similar in circumstances. Both bankrupts were initially disputing a debt and refused to pay, disregarded or simply ignored the statutory demands served on them by the creditor, possibly mistakenly believing that the debt might go away. In both cases the creditors in question ended up petitioning for bankruptcy orders and in both cases these were granted. Both bankrupts own a number of properties and are solvent on that basis. Both will be in a position to apply for an annulment of the bankruptcy orders on the basis of payment in full.
In a slightly different case, another bankrupt, a sole trader, had failed to deal with the filing of VAT returns for over 13 years. However, the bankrupt had been regularly paying the assessment amounts issued by HMRC up to a certain point in time. The bankrupt in this case (who is also a property owner) stopped paying the assessed amounts and HMRC eventually petitioned for his bankruptcy. Luckily, this individual had retained bags and bags of receipts and paperwork dating back years which meant that the VAT returns could be completed and filed. Once the bankrupt’s accountant had managed to file all outstanding VAT returns, we were notified by HMRC that the bankrupt will be owed a £130,000 refund on the basis that the assessed amounts historically being paid were greater than the real liability.
BRI Business Recovery and Insolvency would therefore advise any person who finds themselves in similar situations not to disregard or ignore any formal paperwork chasing payment of a debt. We offer a free confidential initial advice service and although you may dispute a debt, especially in the circumstances were the debt is over £5,000 (the minimum amount that a creditor is able to petition for a bankruptcy order), it is always best to seek advice as early as possible. This being said there are some situations in which bankruptcy cannot be avoided or may actually be the best solution. Whatever your circumstance, if you are in a position where you feel you are unable to manage your debts or you may be concerned about the prospect of bankruptcy please feel free to contact any of the BRI management team. We are here to help with any financial worries you may have.