Insolvency Made Clear: A Guide for Debtors

Insolvency Law Made Clear – A Guide For Debtors
property in particular.
3. Since the petitioning creditor is not treated differently from the other creditors,
the debts owed to the petitioning creditor are not given any priority.
This is important: by spending money pursuing a bankruptcy petition,
some of which will not be recovered, a creditor is compounding their loss.
The primary strategy for settling a bankruptcy petition is simply to say that
it is not worth the creditor spending money which it will never recover.
4. The court is more involved in a bankruptcy hearing than in other areas
of law. If a creditor sues a debtor for an ordinary debt, there are only two
parties to the claim. If they both agree, the court is likely to respect their
agreement. Not so for bankruptcy, where the court steps in to protect the
interests of the creditors as a whole. For example, having presented a petition,
court permission is required to withdraw it in case there is some
side-deal which prejudices the class of creditors.
Bankruptcy is something which happens to one individual at a time. If a bankrupt
co-owns something with someone else (typically, a family home which
belongs to two parents), then only the bankrupt’s share is available for the creditors.
Put differently; it is not possible to claim a debt against both a bankrupt
and their spouse unless the spouse has actively chosen to accept the liability.
Chapter 11 deals with guarantees, which is the most common way in which the
spouse might be held liable.
Corporate insolvency law is similar. However, a company is a ‘legal fiction’,
i.e. it is recognised by the law but it does not actually exist. As a consequence,
the company can be ‘wound up’ at the end of the insolvency process and then
dissolved.
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