Bankruptcy and litigation

Bankruptcy litigation is usually commenced by creditors against the debtor. The debtor is the person who is to be made bankrupt, while the creditors of the debtor are the people whom the debtor owes money to, for example credit-card companies.

Bankruptcy is similar to insolvency. The main difference is that bankruptcy applies to individuals where as insolvency applies to companies. There is no legal definition of bankruptcy or insolvency. A person becomes bankrupt when they are unable to pay their debts as they become due.

Before a creditor can commence bankruptcy litigation against a debtor, they must follow a certain procedure. They must serve on the debtor a statutory demand for payment. If the debtor does not make the requested payment within 21 days, the creditor can commence bankruptcy litigation against the debtor.

As an alternative, a creditor can take the debtor to court if they fail to pay the amount due to the creditor. If the court orders the debtor to pay the creditor and they do not comply, the creditor could then commence bankruptcy litigation against the debtor. If more than one creditor is owed money by a debtor they can jointly commence bankruptcy litigation against the debtor.

As soon as bankruptcy litigation is commenced against a debtor, the court can stay all actions against the debtor. This means that all claims made against the debtor are frozen when a creditor petitions for their bankruptcy. This is a discretionary power which a court may exercise dependent on the circumstances.

If you would like to obtain legal advice on bankruptcy or litigation, Contact Law can put you in touch with local specialist Personal Insolvency or Litigation Solicitors free of charge. So, if you have any questions or would like our help in finding local solicitors please call us on 0800 1777 162 or complete the web-form above. 

Last Updated on 02/03/2010