Stephen Gold: It is positively not a good defence to bankruptcy that you will pay off the debt at a fiver a month
Stephen Gold is a retired judge and author who has written two popular series for This is Money on how to be a successful executor and writing a will that ensures your last wishes are followed.
In his new four-part guide, he first explained what to do if you face bankruptcy, then how to stave off creditors.
Today he looks at a further three tactics to use while you find the cash to meet their demands.
A creditor’s threat to bankrupt you for a debt of less than £5,000 is empty, as I explained in my previous column. They can’t do it.
And even when the creditor can do it, would they do it? Bringing bankruptcy proceedings does not come cheap to the creditor.
There are fees to be paid to the court: £302 plus a £1,500 deposit towards the official receiver’s expenses and lawyers’ fees and other expenses could easily take the bill up to over £3,500.
Not a very good deal for the creditor if you haven’t a bean and they end up with nothing but that bill.
The pressure is on: You can try the ‘Beanless Defence’
Without an agreement between you and your creditor, which way will they jump?
If the threat was not empty and they decide to go down the bankruptcy route in relation to a debt for a fixed sum, you will first receive a document called a ‘statutory demand’.
If you reckon you have got a good defence to the claim, you should apply to the court to cancel it. Once the court does so, the creditor’s only option will be to sue you and you can battle out the dispute in court.
And if you accept you owe the money and still do not pay up within 21 days, your creditor will be able to follow up the demand with a bankruptcy petition.
It is positively not a good defence to the bankruptcy that you will pay off the debt at a fiver a month.
You could always try the ‘Beanless Defence’ – that’s what only I call it so don’t describe it as such to the judge or you will get 200 lines.
It goes like this: ‘I haven’t a bean to my name and there is no sign of an upturn in my existence for years. I have given my creditor details of my full circumstances and I have prepared a statement for you covering the same ground.
‘There is no point in making me bankrupt because it will not lead to anyone to whom I owe money getting a single new penny and it will be a criminal waste of everybody’s time.
‘Please dismiss the petition and consign it to the rubbish bin where it belongs.’ Or words to this effect!
Mention two cases in which a defence along these lines succeeded. Lock v Aylesbury Vale District Council in July 2018, and Re Edgeworth Capital and another v Maud in April 2020.
However, if we are not in ‘Beanless Defence’ territory and a cigar smoking rich uncle (or some other generous benefactor) is going to help you out, or you are able to source the money to settle the debt elsewhere, the judge at the bankruptcy hearing will probably be prepared to adjourn it to enable you to come up with the cash.
You won’t get an adjournment into the next decade: you will be lucky to get away with more than three months to get your act together.
Look, no bankruptcy petition: Buying time if you are sued by your creditor
The creditor’s alternative route to attempting to extract payment of the debt out of you is to sue you, which will probably be in the county court.
That will be with a view to getting a judgment which can be enforced in one or more of a series of ways (for example, sending in the bailiff or getting some of your wages docked through an attachment of earnings order).
By doing this, the creditor can claim interest on the debt which may not otherwise be open to them.
Negotiating tactics: Your creditor might force you into bankruptcy or try to sue you in the county court, but there are ways to buy time to find the money you owe
Before starting a court case, the creditor is expected to comply with a pre-action debt protocol, where they are a business or public authority, and you are an individual (which includes a sole trader).
This entails you being sent a letter of claim with information including whether any interest on the debt is continuing; how the debt can be paid; why a court claim is being considered if you are paying instalments or offering to do so; and what you should do if you want to discuss payment options.
Various bits and pieces including an information sheet are to accompany the letter along with a reply and financial statement form for you to complete.
If you fail to respond, the creditor can sue away. You should be allowed a reasonable period to obtain legal advice where you ask for it and at least 30 days from sending back the completed financial statement or, if later, from being given copies of any relevant documentation for which you have asked.
What if your creditor has lost temporary consciousness due to excessive laughter at the idea they should take any notice of the protocol, and has ignored it?
That won’t give you a valid defence to the claim. But if you need more time, you could fill out the defence form seeking it. Try this.
1. I admit I am indebted to the claimant in some amount and put the claimant to proof as to the amount of such indebtedness.
2. The Pre-action Protocol for Debt claims (‘the protocol’) applies to the claim as, for its purposes, the claimant is a business and I am an individual.
3 The claimant is in breach of the protocol in that it has failed to serve me with a letter of claim in compliance with paragraphs 3.1 to 3.3 of the protocol prior to the issue of this claim or at all.
4. I request that the claim be stayed for a period of 28 days from the date on which the claimant does comply with the protocol as stated and that I be granted permission to file an amended defence within 42 days of such compliance and an order that the costs of and consequent upon the filing of an amended defence be mine in any event.
I further request it be ordered that in the event of the claimant failing to comply with the protocol within the time stated, the claim do stand automatically struck out without further order of the court and the claimant do pay my costs of the claim to be assessed in detail on the litigant in person basis.
I believe that the facts stated in this defence are true. I understand that proceedings for contempt of court may be brought against anyone who makes. or causes to be made, a false statement in a document verified by a statement of truth without an honest belief in its truth.
(signed) Ian Det
Your alternative course is to make an application for an order in the terms of paragraph 4 above but ask for an extension of time for putting in a defence following protocol compliance instead of asking for permission to file an amended defence.
Making the application – use court form N244 – will attract a court fee which you would have to pay unless you qualified for ‘Help with Fees’, which was covered in part one. No fee for putting in the defence.
Paralysing your creditor: Enter the Debt Respite Scheme
Take this situation. You are in debt and abhor the idea of bankruptcy. For the time being, you are unable to clear the debt or all of it.
You want to attempt to organise a plan to settle what you owe by instalments or in some other way, through the cigar smoking uncle (all that smoke is bad for his health) or otherwise.
One of your creditors is threatening court or tribunal proceedings to get their money, has already started a case, or is trying to enforce through the court a judgment or order already obtained.
You desperately need time to sort things out. That laughing creditor has no intention of giving you a nanosecond more.
Enter the Debt Respite Scheme. Something for debtors to love: creditors to hate. It has only been going for two and a half years, during which it has reduced some creditors and bailiffs and enforcement agents to bucketful of tears.
The scheme offers two types of moratoria which may sound disgusting but are anything but. These are periods during which your creditor is generally paralysed from following up whatever they were doing or threatening to do to achieve settlement.
If bankruptcy proceedings against you are already in progress and relate to a debt covered by the moratorium, then the hearing will be adjourned until the moratorium has ended.
Any other case that has already been started can progress to a final hearing, but should the case go against you, the creditor’s paralysis will extend to doing anything about enforcing the judgment or order.
Retired judge and writer Stephen Gold
Ex-judge Stephen Gold is the author of ‘The Return of Breaking Law’ published by Bath Publishing, a bumper and irreverent guide to your legal rights and winning in court or losing well.
It is full of tips and templates for the consumer and covers more on bankruptcy plus a host of other topics, including pre-nuptial agreements and how to cope with financial disputes following relationship breakdown.
If you cannot pay all or some of your debts and it is appropriate that you should have protection from your creditors for a period (because you want to organise a debt plan or access funds, for example) then a moratorium is likely to be granted to you so long as certain other qualifying conditions are met: in particular, you are over 18 and are not subject to a debt relief order or an undischarged bankrupt.
Should any creditor reckon you are having a laugh, they can ask for the moratorium to be reviewed and, should it be upheld, they can then apply to the county court to cancel it but the mortarium could well have expired by the time that has been done.
A couple of other things to note. You must still keep up certain payments while the moratorium lasts such as taxes, mortgage instalments, rent and service charges and for utility bills. Student loans are one of the debts excluded from a moratorium.
You can request that your address is withheld from creditors on the grounds that disclosure might reasonably be expected to lead to violence against you or a family member living with you.
What are the two types of moratoria?
The Breathing Space moratorium lasts for up to sixty days but a further one can be sought, if appropriate, after one year. You can seek it through a debt counselling organisation like StepChange or the local authority. No charge.
The Mental Health Crisis moratorium lasts for the period of the crisis which relates to mental health plus 30 days. Once that time is up, a Breathing Space moratorium can be sought, if appropriate.
This can be through the same organisations as the Breathing Space moratorium and by you or a host of other people such as a carer or social worker.
We saw the Debt Respite Scheme at work in a High Court case last year. The creditor had a court judgment against the debtor.
It remained unpaid and the creditor eventually obtained an order for the debtor’s flat to be sold, which would allow the sale proceeds to be utilised to pay off some of the judgment.
The debtor had to be evicted so as to accommodate the sale which went ahead. Trouble was that on the dates of the debtor’s eviction and completion of the sale, there was a mental health crisis moratorium in force.
That meant that both the eviction and sale were null and void. Buyer out: debtor entitled to get bank in.
The debtor then succeeded in obtaining another mental health crisis moratorium which was later cancelled by the court and an injunction was ordered, forbidding her to apply for yet a further moratorium without the court’s permission.
In due course, the creditor succeeded in getting the flat sold but the available proceeds were insufficient to settle the judgment. The debtor is being pursued for the balance.
Moral for creditors? Be very, very careful. The Insolvency Service maintains a register of moratoria and they come into effect on the day after they are made.
They will notify you once a moratorium is effective and you may hear about it from other sources. In the three months up to 30 September 2023, over 23,000 moratoria were registered.
IN PART FOUR… Stephen Gold explains how to protect your credit rating, possessions and home while settling your debts
