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Creditor trying to make you bankrupt

This advice applies to Wales

In certain situations, one or more of the people you owe money to can apply to have you made bankrupt, even if you don't want them to. You may be able to avoid being made bankrupt by your creditor(s) but you'll have to act within set time limits and according to certain procedures.

This page explains when your creditors can apply to make you bankrupt and what your options are if you get a statutory demand.

Top tip

If you are facing bankruptcy, you'll need expert advice. You can get advice about bankruptcy from your local Citizens Advice bureau.

To search for details of your nearest CAB, including those that can give advice by e-mail, click on nearest CAB.

Why might a creditor try to make you bankrupt?

One or more of your creditors might want to make you bankrupt for any of the following reasons:

  • they know you have land or property which could be sold to pay back your debts
  • to punish you, because they believe you've been fraudulent or broken promises
  • to try to stop you from getting more credit in the future
  • they think you're being dishonest or hiding things of value, and want your financial affairs to be investigated
  • they're part of a group of employees and making you bankrupt would help them recover wages they're owed.

Top tip

Creditors may sometimes threaten you with bankruptcy where it's clearly inappropriate, for example, where you owe less than £5,000. This might be harassment and you can challenge it.

More about harassment by creditors

Process for creditors making you bankrupt

A creditor can apply to make you bankrupt if you owe them at least £5,000 and they take the following steps:

Step 1: action before trying to make you bankrupt

Before a creditor can apply to the court to make you bankrupt, they have to show they've tried certain legal methods to get you to pay your debt. These are normally one of two methods:

  • sending or giving you a statutory demand - this is a legal notice about the money you owe. If you don't pay or come to an arrangement to pay within 21 days, or get the statutory demand cancelled, your creditors can ask the court to make a bankruptcy order
  • attempting to enforce a court judgment that's been made against you using bailiffs or another enforcement process. The bailiffs must have made enough serious attempts to enter your home and take your property.

If the creditor can show they've tried one of these methods to get you to pay but failed, they can apply for your bankruptcy. They will usually serve a statutory demand first.

Statutory demand

If a creditor serves a statutory demand on you, the first thing you need to do is get advice about how bankruptcy would affect you and your family. If you have financial problems, it may be that bankruptcy is a good option for dealing with it. You might decide to take no action after receiving the statutory demand, in the hope that the creditor will ask the court to make you bankrupt. If they do this, the creditor will have to pay for your bankruptcy, instead of you having to pay for it yourself. However, there is no guarantee that a creditor will definitely apply for your bankruptcy, even if they've served a statutory demand.

If you get advice and decide that you want to avoid bankruptcy, you should do one of the following:

  • respond within 21 days of the statutory demand being served, with payment or to negotiate an offer
  • if you think you have grounds to challenge the statutory demand, apply to have it cancelled (set aside) within 18 days of the notice being served. If it is cancelled your creditor may not be able to continue trying to make you bankrupt. This depends on the reason why it is cancelled.

You may need to get advice about whether you have valid grounds to cancel a statutory demand. You can get advice from your local Citizens Advice Bureau.

►More about statutory demands and what to do if you receive one

Step 2: bankruptcy petition

If you don't want to be made bankrupt, it's a really good idea to get legal advice to help you put your case together. In some circumstances, you may be able to get legal aid to help with the costs of this.

Check whether you might be eligible for legal aid.

If you don't pay, negotiate a payment plan or get the statutory demand cancelled, the creditor will be able to apply for your bankruptcy by presenting a bankruptcy petition to the court. They have to pay a fee to do this. You'll receive notice that the petition has been made and will be given the opportunity to oppose the making of a bankruptcy order if you want to. You don't have to pay any fees yourself.

If you want to avoid bankruptcy at this stage:

  • it's a good idea to get legal advice about whether you can oppose the making of a bankruptcy order and if so, to help you put together your defence. In some circumstances, you may be able to apply for legal aid to help you with the costs of this
  • apply to the court to oppose the bankruptcy order, setting out your reasons why, such as you don't owe the money, the creditor is out of time for taking legal action or that you've already made a reasonable offer of repayment. Send a copy of this notice to your creditor and their solicitor
  • do this at least 7 days before the court hearing.

Step 3: bankruptcy court hearing

The bankruptcy hearing will usually take place before a district judge. You'll be given notice of the hearing and should attend, taking any appropriate evidence with you if you're opposing the bankruptcy order. This is a very serious hearing and ideally you need to be legally represented by a solicitor.

At the hearing, the judge may do one of the following:

  • dismiss the petition - for example, if you've already paid the debt in full or if the creditor is out of time for taking court action for the debt. The judge also has discretion to dismiss the petition if they believe your creditor has unreasonably refused offers of payment from you, such as payment by instalments or an offer to secure the debt
  • suspend the proceedings, for example if more evidence is needed or to give you some time to raise money to pay the creditor
  • make a bankruptcy order.

Step 4: bankruptcy order made

The court can make a bankruptcy order if it is satisfied that:

  • everything the creditor says is true
  • the debt hasn't been paid
  • no agreement has been made about payment or securing the debt, and the creditor hasn't unreasonably refused an offer
  • you don't have a defence against the making of a bankruptcy order.

If the judge decides to make a bankruptcy order, you'll be declared bankrupt immediately. The official receiver will be told.

After a creditor makes you bankrupt

After a creditor makes you bankrupt, the official receiver will take control of your property and financial affairs. They'll contact you to arrange to get more information from you. You have to co-operate with the official receiver. If you don't, you could be committing a criminal offence.

Next steps

More information

'Dealing with debt: how to make someone bankrupt' - from the Insolvency Service at www.gov.uk

'Statutory demands' - from the Insolvency Service at www.gov.uk.

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