What Is A Creditor?

To put it simply, a creditor is a person, entity, or business that has provided a good or service and is owed money for said work. Or, they have loaned money to another entity.

But what happens when bankruptcy enters the picture? This article seeks to provide a look at what to expect and how you will be paid what you are owed.

Who Can Be Bankrupt?

Bankruptcy does not apply to partnerships or companies. It only applies to individuals. The bankruptcy happens when the presentation of a petition occurs in court, usually because the bankrupted individual cannot pay their debts.

The debtor may be the one to present the bankruptcy petition, or it could be one of his/her creditors.

The reasoning behind this order is to appoint an individual tasked with collecting the bankrupt’s assets and disburse them to creditors in compliance with the law.

What About the Bankrupt’s Estate?

Once the bankruptcy order is created, an Official Receiver appointed by the court will handle the estate. This person is a court officer and civil servant.

Within 12 weeks of the order being made, the Official Receiver has to decide whether or not to arrange a meeting of creditors in order to appoint an authorised insolvency practitioner tasked with acting as a bankruptcy trustee.

What Happens to the Bankrupt Individual?

The property of the bankrupt is vested in the trustee. Any property rights are lost by the bankrupt, aside from items needed to run a business and domestic goods such as furniture. Generally, all equity in the house has to be sold. If the bankrupt is married or has children, the sale of the house by the trustee is discouraged during the first 12 months of the bankruptcy. The trustee is given three years from the order’s date to sell the home or deal with the bankrupt’s interest in the home. If not done within the appropriate time period, the property then reverts to the bankrupt.

  • The trustee may also lay claim to any property acquired by the bankrupt after the bankruptcy order, e.g., assets left to that person as part of a will
  • The bankrupt cannot obtain a credit of more than £500 from anybody without disclosing they are an undischarged bankrupt.
  • The bankrupt shall not do business under a name different from the one under which he was declared bankrupt, without making it known that he is an undischarged bankrupt.
  • The bankrupt may not act as a director of a company or partake in its management without consent of the court.

Will Unsecured Creditors Be Paid by The Trustee?

Creditors who are preferential and secured will be paid before the unsecured creditors. And secured creditors are those with some sort of security over the property of the bankrupt- for example, a bank that holds a mortgage on the bankrupt’s home.

Preferential creditors are a unique category of an unsecured creditor. They are debts owed to employees, and Redundancy Payment Services, and are paid above all other unsecured creditors.

The trustee pays a dividend to the unsecured creditors if sufficient funds have been received from the assets of the bankrupt after paying secured creditors, preferential creditors, and costs. 

After the adjudication/providing for all claims, a dividend will be declared. It’ll be a percentage of the total acknowledged claim of each creditor and based upon total cash available for creditor distribution and the sum of all creditors’ claims. 

Unsecured creditors are ALL treated equally.

Conclusion

We hope this has been a helpful overview of creditors and bankruptcy claims. Please consult your solicitor for information pertaining directly to your case.