Insolvency Office Complaint

Kat7739

I am desperately seeking advice regarding a bankruptcy application that my husband submitted online on the 9th December 2022.

John and I are currently separated but he has asked me for help with this matter.

To give you some background to this, John has accrued debt with 3 separate organisations. These are HMRC, DWP and Next plc with a total of £7605. The debt to HMRC which is £2850 will be contested and hopefully refunded, so John’s actual total of debt is £4755.

We have been separated for the past 3 years, mainly due to his lack of responsibility, but we have stayed on good terms and we had talked about getting back together next year. So, when a letter arrived from a debt collection agency to my address which he intercepted when he was at my home on Friday 9th December he panicked. He made a bad judgement and filled out the bankruptcy application online late Friday afternoon on the 9th December whilst I was out. This was submitted at 4.42 pm so very unlikely to have been looked at as the office closed at 5.00 pm.

When I came back he told me what he had done.

After showing me the letters and going through the debts he had it was clear that declaring bankruptcy was not the right option. He tried to contact the adjudicator’s office but it was closed until the Monday. I emailed the office on his behalf at 9.48 am on Monday morning of the 12th December to ask if the application could be withdrawn but was told no it could not as it had already been approved.

I cannot believe that there is no 'cooling off' period for something like this! At the time that he made the application he felt in a desperate situation, he wasn't thinking properly of what the consequences would be it was a knee-jerk reaction to the debt letter. John didn't realise that the application couldn't be cancelled he said he'd read it would take up to 28 days to process. Within an hour of the submission of the application he knew he'd done the wrong thing and tried to retract it.

His brother and wife live in the house that is in John's name. His brother gave him the money to buy it 5-6 years ago on the agreement that it be signed over to him after 10 years. So obviously John is mortified that he has put his brother's home at risk of repossession and their relationship has completely broken down over this.

John has no other assets or pension fund, he has worked most of his life but is absolutely terrible with money and has had problems with gambling addiction in the past. He earns minimum wage.

The Official Receiver contacted John by telephone on the 15th December 2022 to discuss his income and expenditure and identify any assets he may have. John earns minimum wage and works full time. He does not have any pension and his only asset is a house in Sheffield that he bought from the Council 4 years ago with money that his brother lent to him. He and his brother have an agreement that after 10 years John will sign over the house to his brother and his wife who currently live there. At the moment, since our separation, John has no fixed address, he stays with friends and his brother.

John had another call from the OR on the 22nd December. During the telephone conversation with the Official Receiver (OR) John asked if he paid off the debts in full that he owed. The OR stated that yes he could but that it did not mean the house was safe as it would be used to pay off additional fees running into thousands of pounds or he would need to annul the bankruptcy which again has a fee of several thousand pounds which he doesn’t have.

I cannot believe that an organisation can act so unethically just because he made a wrong decision while under a lot of mental anxiety for a few thousand pounds of debt. The stress of the breakdown of our relationship, that of his brother, trying to keep everything from his elderly parents so they don't worry, the threat of having the house repossessed, debts to be paid and more money to find to try to save the house, which he doesn't have, was just too much for him. It would be too much for anyone. John tried to take his own life that evening.

John is not a bad person. He is foolish and irresponsible and has been that way for the whole of the 15 years I have known him but he isn't a nasty man, he has a heart of gold and doesn't deserve what is happening to him.

All John wants is to be able to pay off the 3 debts in full and ensure that the house will be safe for his brother without having to pay out more and more money that he does not have.

The bankruptcy application, in my view, should not have been processed or approved or at least be some means of retracting within such a short space of time. I believe that John was not in a fit mental state when he submitted the application and I believe that ruining his life for a small debt of £4755, which he has offered to pay in full, is completely unethical.

On the 23rd December 2022 I submitted a complaint on John’s behalf to the Insolvency Complaints Department. I wrote in detail explaining what had happened and highlighting the fact that due to the speed in which the application had been processed there was no opportunity to retract the application. I asked if it was possible to waive the Official Receiver’s fees which will be nearly £8000 and just pay of the 3 debts that he owed.

I received a reply on the 12th January 2023 from the Senior Leader which I have available if you wish to see it. In this letter it stated that they partially upheld our complaint and accepted that the speed in which John’s application had been processed was not usual and that if it hadn’t been processed so quickly it would have been possible for John to have retracted the application. The Adjudicator who processed it contacted her manager to try to withdraw it from the system but it was not possible.  The Senior Leader also stated that they had now put in place procedures to stop this happening again and also stated that he would be making their Policy team aware of John’s case, so that it may be considered as part of their response to the Review of the personal insolvency framework, in particular, the ability for an applicant to withdraw their application and a cooling-off period.

However, instead of offering to cancel the bankruptcy without further charges he just stated that John could cancel the bankruptcy by following the Annulment process which will cost in addition to the payment of debts a further £8000!

John has no money. The only way that he can resolve this without having to give up the house is if I pay the £16000 out of my pension fund.

I escalated my complaint to the second stage with the Insolvency Complaints team on the 16th January 2023. I explained that we were not happy with the outcome or response to our complaint.

I asked them to explain why although they had admitted that the speed in which John’s application had been processed was not acceptable and that they had admitted that they had now changed their process why did he still have to pay the extortionate fees?!

I received a reply today, 31st January 2023 from the Business Services Director and they basically state as before that they cannot waive the additional fees. It states that John’s application was started at 08.47 am and approved at 09.10 am a total of 23 minutes!! So we were 25 minutes too late to stop it being processed. Here is a quote from his letter:

As a result of Mr ************ case, Mr ******** has now put in place an artificial delay of 1.5 days before an application can be moved to decision making. This does not assist Mr ****** , but will, hopefully, assist future applicants in a similar situation.

John has had to apply for an Annulment of his bankruptcy and the court hearing is on the 21st February 2023.

If anyone can assist in any way we would be eternally grateful.

MalMonroe

Oh, this is a terrible situation. Not only has John applied for bankruptcy but has obviously also had to pay £680 for the privilege.

Is there any way that the court hearing can be postponed? I'm not sure if that is allowed but it is worth asking. Then you could start contacting some people. In fact, you could do that anyway.

I'd contact John's local councillor AND his MP.  If it's not clear who they are, the information can be found online - as per links below -

https://members.parliament.uk/members/commons

https://www.gov.uk/find-your-local-councillors

Don't be afraid of asking for their help, that's what they are there for. Phone if you have to and tell them of the urgency of the situation.

You or John could also try contacting Citizens Advice for help - https://www.citizensadvice.org.uk/  They will be able to advise about low cost legal help, which I feel John really does need.

Any of the free debt help agencies, to see if they have any experience of this kind of thing -

StepChange  https://www.stepchange.org/
National Debtline  https://www.nationaldebtline.org/
Citizens advice - link as above.

I would also encourage John to see his GP for help with his mental state and to ask if it would be possible for his GP to provide some proof of the state of his mind when he applied for the bankruptcy. Especially given the fact that he attempted to take his own life. He may have to pay for that, though and it's a long shot but may help and he needs all the support he can get.

If John's case is going to be considered a precedent to changing some kind of bankruptcy law (and you do have that in writing - "This does not assist Mr ****** , but will, hopefully, assist future applicants in a similar situation"), then that, I feel is very important in that it doesn't seem fair if the rules are going to be changed for people who mis-apply for bankruptcy in the future but that he is going to be heavily penalised. I don't think that person should have put that in writing to you because to my mind, it weakens their case. They're going to help people in the future but not John now. How very unjust.

I do feel that John will need some representation for the court hearing though and the hearing has really been arranged far to early for him to get that sorted. Normally for most court cases, there's a longer waiting period.

You are really very kind and you also have a heart of gold to be helping your ex in this way. He's very lucky to have you. You've explained the situation extremely well here and I feel that with you on his side, he will be able to cope. Attending court for any purpose is stressful and intimidating but if John has the opportunity to put his case forward, as outlined above by yourself, you don't know what might happen. 

I wish you and John all the very best and hope that some of this might prove helpful. It's just that the court case is really being brought far too soon for anyone to actually prepare any decent case.  Good luck with it all.

Edited to add : 
Sorry I know this is long enough as it is but I have just found this on the Debt Camel site. Don't know if it will be of any help but that estimates that it takes a couple of days, rather than minutes, for an application to be considered. I realise it is just an estimate but if that is on the internet and it's incorrect, it need to be removed. Or the Insolvency Service needs to do something about it if it IS misleading. 

https://debtcamel.co.uk/bankruptcy-time-line/

Kat7739

Thank you so much for your reply. I have spent hours and hours trying to find a solution or anyone that can help. I've written or telephoned various organisations including Stepchange, Citizen's Advice, various solicitors for an initial consultation but due to the complexities either no one can help as they don't have any experience of this type of situation or don't know what advice to give or, with regard to solicitors, we don't have the limitless funds that may be required so they are not interested. I have written to our Local MP who has provided a letter of support but I was told by a solicitor that these aren't worth the paper they're written on. John is a very private person and despite my asking him to see his GP he hasn't and won't so we don't have anything on record regarding his mental state which could have been useful. I've resorted to sending a letter to Rishi Sunak and the King!! I don't think it will get past their PA but I have to try! No one will help and we don't have the funds to fight I'm afraid. I have one last shot at escalating a Tier 3 complaint to the Chief Executive of the Insolvency Office but I really need some advice as to what to write before I send it. 

Keep_pedalling

Why did John’s brother make this unusual arrangement? (Sorry, I can only think of very dodgy ones). This is going to cause John more financial issues down the line. Even with no money changing hand John is likely to be left with a hefty capital gains tax liability if he transfers ownership to his brother.

sourcrates

The bankruptcy process was streamlined some years ago, with the removal of the need to appear in bankruptcy court, making it a quick, all online process, I suppose that can have its good and bad points, as has been proved in this case.

Lets look at this from the position he is in now, its not 100% guaranteed the house in his name would be of interest to the OR.

It would depend on various factors, what equity there was in the property being one of them.

The OR may decide that with only 10k at most at stake (you should not pay to cancel the bankruptcy) sale of the house may be inappropriate, and it may be taken care of by a BRO and/or an IPA.

If a sale was forced, does the brother have children ? courts won`t put kids out on the street.

If all else fails then they would receive the majority of the sale price back, minus any indebtedness from the bankruptcy, not ideal granted, but there you go.

Minkym00

This is fixable, but you must act quickly. 

There are three ways a bankruptcy can be annulled:

* Section 282(a) - ought not to have been made

* Section 282(b) - paid in full

* Section 282(c) – IVA is agreed (ignore this one)

John has applied for an annulment under Section 282(b). This means all the debts and fees must be paid (or secured to the satisfaction of the court) and so he would have to pay the £8k OR’s fees as he has made a paid in full application. 

But the key thing here is the property. The fact that there is no written agreement about the arrangement made with his brother works in his favour. The property is legally John’s as his name is on the title. That means that any equity in the property is John’s – which means that he is SOLVENT as his liabilities are relatively low. (You need to include HMRC in his liabilities as it is a current debt)

So, you need to amend the application to a Section 282(a) on the basis that he is solvent and the bankruptcy order ought not to have been made. The OR will not comment on the merits of a Section 282(a) application and will just inform the court of John’s assets and liabilities and that he has complied with his legal obligations. This will show the court that he is balance sheet solvent, and the court should agree the annulment. Most importantly, the OR will not ask for their full fees to be paid, but will ask for their costs to be paid by John calculated on a time-and-rate basis. Now, the fact that made 2 complaints means these costs will be higher than normal (as you have had involvement from the senior leader) but it will still be substantially less than £8k!

You will need to write a witness statement supporting the application, explaining that he is solvent and why, and serve it on the court and the OR straight away. The OR needs time to write their report to court. The witness statement doesn’t need to be fancy, just set out the facts in numbered paragraphs. Mention the complaint but don’t get carried away and go into lots of detail, it’s not relevant and the judge won’t annul the bankruptcy on that basis. If you want help with the witness statement then message me privately.

sourcrates

Brilliant advice above.

Kat7739

Good morning, here is an update. 

First of all thank you everyone for all your suggestions and advice. There has been a change in the situation. I have found out in the last few days that I have a health issue that I need to deal with. I have spoken with the Official Receiver and they have agreed to adjourn John's court hearing for a few weeks. I have paid off the debts in full on John's behalf so there is just the Official Receiver's fees to pay at a total of over £8000. The adjournment will now give me a little breathing space to get further advice on what to do next. Minkym00 your advice sounds like it could be what we are looking for. I will message you later today if that's ok. 

Minkym00

Of course. Happy to help.