Can you recover money owed to you by a bankrupt?

The Official Receiver will inform you if there is to be a creditors’ meeting. Usually there will only be a creditors’ meeting if the bankrupt has substantial assets to distribute. If there is to be a meeting, you will be sent a proof of debt form that you must complete and return to the Official Receiver. You also will be sent a report on the bankrupt’s assets and liabilities in order to give you an idea of the money you may be able to recover. If you believe the bankrupt is withholding information, you are advised to contact the Official Receiver as soon as possible.

Once a person has become bankrupt, you cannot take any further legal action against them to recover the debt. You must wait for the Official Receiver to distribute the bankrupt’s assets. Creditors who have a fixed charge or security over the bankrupt’s assets will be the first to be paid off as their rights are unaffected by the bankrupt’s status. Then the rest of the bankrupt’s assets will be sold to raise funds to pay off the rest of their debts. Their debts will be paid in the following order of priority:

- Fees and charges incurred by the bankruptcy
- Debts due to preferential creditors, as set out in the Insolvency Act 1986
- In the case of a company – creditors holding a floating charge, such as a debenture
- All unsecured creditors
- Interest payable on debts
- In the case of a company – it’s shareholders

If the full repayment of claims is not possible, you will receive a dividend in proportion to the value of the claim. If the bankrupt has very few assets and many debtors, you may receive a small fraction of the debt owed to you, or nothing at all.

It may be possible to recover the money owed to you if you can arrange an Individual Voluntary Arrangement with the bankrupt. An IVA would annul the bankruptcy and enable the individual to repay you in accordance with a payment plan. For further legal advice on recovering money owed to you by a bankrupt, you are advised to contact a specialist solicitor today. A solicitor will assess your situation and provide you with specific legal advice for your circumstances.

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