As a creditor owed money by a debtor you will often be chasing payment, sometimes for months, before payment is received. But what happens if your debtor goes bankrupt?

Guest article by Jeremy Frost, Insolvency Practioner at Frost Group.

Before you commence any legal or enforcement proceedings

Firstly, there is no difference from a creditors’ perspective as to how a debtor is declared bankrupt – the end result is exactly the same.

Once a Bankruptcy Petition has been presented, creditors are unable to take any further legal or enforcement action (without the leave of the Court) against the debtor or their property unless they have registered security for their debt or until such time as the Petition is dismissed without a Bankruptcy Order having been granted.

If the debt is an unsecured loan or trade debt, then in bankruptcy you will be treated as an unsecured creditor and will only receive payment (pro rata) with other creditors, if there are un-charged assets realised in the bankruptcy and after the costs of the bankruptcy are paid in full.

If you hold a valid writ or county court judgment

You are treated no differently within a bankruptcy if you have a CCJ – it affords you no preferential treatment or priority. You might however (depending upon the terms of the CCJ) be entitled to claim interest at either a contractual rate or at the statutory rate of 8% up to the date of the Bankruptcy.

If enforcement action has already commenced, but not been completed

If High Court Enforcement Officers or bailiffs have commenced enforcement action on your behalf and have (for example) taken walking possession of goods before the bankruptcy, then that enforcement action must cease and cannot be completed.

If enforcement officers have already removed goods from the debtor and either they remain unsold or the enforcement officer holds the sale proceeds, then the goods or the monies must be delivered up to the Trustee in Bankruptcy. The enforcement officer’s costs will, however, be a first charge on the goods or monies delivered up.

You will have an unsecured claim in the bankruptcy for your original debt plus interest (if applicable).

If enforcement action has been completed prior to the bankruptcy

A third party buying goods through an HCEO or bailiffs’ sale will always acquire good title, providing that everyone acted in good faith. Any such sale cannot be overturned by a Trustee.

Whenever execution is levied in respect of a CCJ for £1,000 or more, the enforcement officer must retain the sale proceeds for 14 days. If within this period he is notified of a Bankruptcy Petition or Order then he must pay the sale proceeds (less his costs) to the Trustee when appointed.

If enforcement action has been completed after the bankruptcy

Any attachment or execution put in force against the debtor after the commencement of the bankruptcy is void (S346 Insolvency Act 1986) and will be overturned by a Trustee. The exception to this is execution against property acquired by the bankrupt after the commencement of the bankruptcy.

Post bankruptcy

Generally creditors’ rights to pursue debtors for payment cease completely upon the making of a Bankruptcy Order. With the debtor’s discharge and the end of the bankruptcy this position does not change. The debts are deemed discharged.

The only exceptions to this are for those debts (e.g. fines, student loans, Family Court Orders, CSA etc) that are not provable in Bankruptcy.

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