When can my bankruptcy be annulled?
There are three potential grounds under which a bankruptcy order can be annulled:
- The bankruptcy order should never have been made.
- The bankruptcy debts, including costs and interest, have been paid in full.
- You have successfully proposed an individual voluntary arrangement which has been accepted by creditors.
It should be noted that it is only possible to have your bankruptcy annulled before your discharge from bankruptcy. If it is not annulled, the bankruptcy order will remain on your credit file for another 6 years. You should also note, if you have petitioned for your own bankruptcy you cannot simply change your mind and use this as grounds for annulment.
Annulment when the bankruptcy order should never have been made
There are several circumstances for which you can apply for annulment of your bankruptcy on the grounds the order should never have been made:
- There was an error in the court process in which you were declared bankrupt.
- The bankruptcy petition debt was never due.
- The bankruptcy petition was used to avoid due process to pursue the debt.
- The bankrupt was under the age of 18.
Before making such an application you should seek the advice of an insolvency solicitor to ensure you have a good case. If they believe the bankruptcy order may be annulled you should contact the official receiver to advise on the intended course of action. In order to avoid further costs accruing you should ask for an informal stay on your bankruptcy proceedings. If this is refused, your solicitor may suggest applying for a formal stay in order to protect your assets.
It may be necessary to incur legal costs of £5,000 – £10,000 in having the bankruptcy order annulled. If you are successful in your application, some of these fees may be recoverable from the petitioning creditor. There is also the matter of the official receiver’s and trustee in bankruptcy costs. Where the annulment is made on this basis, the court will generally order this be paid by the petitioning creditor, however, if they have insufficient means an order may be made for you to pay these costs. This may therefore still leave you with a significant bill, but it may be possible to negotiate on these costs and arrange a payment plan for a reduced amount.
Annulment where bankruptcy debts are paid in full
In some circumstances, your assets may exceed the total bankruptcy debt and it is simply the case you do not have the liquid cash to pay these debts. In these circumstances, you can still be declared bankrupt on the basis of being cash flow insolvent. If there is an asset you can sell to satisfy the bankruptcy debts in full it may be prudent to do this as quickly as possible. This avoids the costs of bankruptcy from increasing and costing you more to annul your bankruptcy.
Again, if you intend to apply for the annulment of your bankruptcy on this basis, you should contact the official receiver at an early stage to advise them of this. This will hopefully encourage them to hold off appointing a trustee in bankruptcy under which the costs may increase even further. As with the previous method you may also apply for a stay in the bankruptcy proceedings, avoiding further costs, if you can demonstrate action is being taken to pay the debts in full.
Unfortunately, as the situation has been sufficiently progressed as to have resulted in you being declared bankrupt, you will be expected to pay the official receiver’s costs, the petitioning creditor costs and trustee’s costs as well as the bankruptcy debt, with interest at the statutory rate. The costs will therefore be significant, particularly where remuneration is being charged on a percentage of realisations basis, however, you can apply for the court to review these costs if they are unwilling to do a deal on the amounts.
Annulment where an individual voluntary arrangement is accepted
If you act quickly, and have sufficient resources to make a monthly contribution, it may be possible to propose an individual voluntary arrangement to annul your bankruptcy. This will protect your assets from the bankruptcy order and once the IVA is completed will result in the debts being marked satisfied on your credit file, rather than being in default.
You will need a licenced insolvency practitioner to assist you in putting your proposals to creditors and they will make the same contact with the official receiver from the start, in order to attempt to keep the costs down. If 75% of creditors voting on the proposals accept the arrangement, it will then be possible to apply to the court for annulment of your bankruptcy.
The supervisor and the solicitor assisting with the IVA and the annulment application may require a payment to be made upfront in order to cover their position. However, the petition costs, the official receiver’s costs and any trustee’s costs will have to be paid as an expense of the arrangement. They will therefore be met from the contributions and any other assets you introduce into the arrangement, rather than being paid separately.
As above, there are several grounds for annulment of your bankruptcy and the first steps should be to take advice on your position to decide on the most appropriate route. Contact our business rescue experts who can assist you in taking the first steps back to solvency.