Even relatively small unpaid debts can balloon into a major problem, but taking prompt legal advice can lead to compromise and prevent a misfortune becoming a disaster. The point was illustrated by one case in which a couple were ultimately declared bankrupt after falling behind on their children's private school fees.
The school had obtained judgment against the couple for just under £8,000 in unpaid fees. The school issued a statutory demand for payment. Under the statutory demand procedure, a creditor who has obtained a court judgment against a debtor can present the statutory demand and then, if payment is not made, apply for the debtor to be declared insolvent. However, by the time bankruptcy orders were made against the couple two months later, interest and debt recovery costs had almost tripled the sum claimed against them to over £23,000.
In dismissing the couple's challenge to the bankruptcy orders, the High Court ruled that the procedure followed by the school met the requirements of the Insolvency Rules 1986. The Court rejected arguments that the statutory demands, upon which the orders were based, were defective in that they did not inform the couple of their right to have them set aside, varied or suspended.