VOLUNTARY INSOLVENCY,

Insolvency Law- ACT NO. 1956

KINDS OF INSOLVENCY

1.   Voluntary  insolvency—an  insolvent  debtor  owing  debts exceeding in amount in the sum of P1000, may apply to be discharged from his debts and liabilities by petition to the RTC of the  province or city in  which he  has resided for 6 months next preceding the filing of the petition

2.   Involuntary insolvency—an adjudication of insolvency may be made  by the petition  of 3 or  more creditors, residents of  the  Philippines,  whose  credits  or  demands  accrued  in the   Philippines,   for   the   amount   of   which   credits   or demands are in the aggregate of not less than P1000

STEPS IN VOLUNTARY INSOLVENCY

1.   Filing  of  the  petition  by  the  debtor  praying  for  the declaration of insolvency
2.   Issuance  of  order  of  adjudication  declaring  the  petitioner insolvent
3.   Publication and service of the order
4.   Meeting of the creditors to elect the assignee in insolvency 

5.   Conveyance  of the debtor’s property by the clerk of court to the assignee
6.   Liquidation of the debtor’s assets and payment of his debts
7.   Composition, if agreed upon
8.   Discharge  of  the  debtor  on  his  application,  except  a corporation
9.   Objection, if any, to the discharge
10. Appeal to the SC in certain cases
 

REQUISITES OF PETITION FOR VOLUNTARY INSOLVENCY THE PETITION WHICH MUST BE VERIFIED, IS TO BE FILED—

1.   By an insolvent debtor

2.   Owing debts exceeding in amount of the sum of P1000

3.   In the RTC of the province or city in which he has resided for 6 months next preceding the filing of such petition

4.   Setting forth in his petition the following
a.    His place of residence 
b.   The  period  of  residence  therein  immediately  prior to filing said petition
c.    His inability to pay all his debts in full
d.   His   willingness   to   surrender   all   his   property, estate, and  effects  not exempt from  execution for
the benefit of creditors
e.    An application to be adjudged an insolvent
 

EFFECT OF FILING OF PETITION

     Once  the  petition  is  filed,  it  ipso  facto  takes  away  and deprives the debtor petitioner of the right to do or commit any  act  of  preference  as  to  creditors,  pending  the  final adjudication
 

DOCUMENTS TO ACCOMPANY THE PETITION

1.   A verified schedule must contain—
a.    A full and true statement of all debts and liabilities of the insolvent debtor
b.   An  outline  of  the  facts  giving  rise  or  which  might give   rise   to   a   cause   of   action   against   such insolvent debtor

2.   A verified inventory which must contain—
a.    An accurate description of all the personal and real property  of  the  insolvent  exempt  or  not  from
execution  including  a  statement  as  of  its  value, location and encumbrances thereon

b.   An  outline  of  the  facts  giving  rise  or  which  might give  rise  to  a  right  of  action  in  favor  of  the insolvent debtor 
 

FILING OF SCHEDULE AND INVENTORY, JURISDICTIONAL

     On  filing  a  petition  for  a  discharge  from  his  debts,  an insolvent  is  required  to  present  a  verified  schedule  of liabilities and a verified inventory of his properties
     The presentation of such documents stating the amount of each   creditor’s   claim   is   a   jurisdictional   requirement, without  the  proper  performance  of  which  his  subsequent discharge will be of no avail
 

EFFECT  OF  ERRORS  IN  DESCRIPTION  OR  OMISSION  OF PROPERTY IN INVENTORY

     That the property is erroneously or ambiguously described in  the  insolvent’s  inventory  will  not  affect  the  title  of purchasers in the insolvency proceedings.  All the property of the insolvent passes to his assignee and is administered in  the  insolvency  proceedings  regardless  of  errors  in  the insolvency.
     If the insolvent omits property from his inventory, through either  mistake  or  fraud,  it  is  the  duty  of  the  assignee  to have  the  inventory  amended  so  as  to  include  it  and  take possession and administer it
     Even property exempt from execution must be included in order to preclude possible  fraudulent  omissions  under the pretext  that  such  property  is  exempt.    But  where  the petitioner  didn’t  attach  an  inventory  to  its  petition  for insolvency,  alleging  under  oath that it had no property to inventory,  the  lack  of  inventory  was  held  not  fatal  to  the petition  because  it  was  assumed,  until  proven  otherwise, that the petitioner was stating the truth.
 

EFFECT OF COURT ORDER DECLARING DEBTOR INSOLVENT 

1.   All the assets of the debtor not exempt from execution are taken possession of by the sheriff until the appointment of a receiver or assignee
2.   The  payment  to  the  debtor  of  any  debts  due  to  him  and the delivery to the debtor or to any person for him of any property  belonging  to  him,  and  the  transfer   of  any property to him are forbidden
3.   All  civil  proceedings  pending  against  the  insolvent  debtor shall be stayed
4.   Mortgages   or   pledges,   attachments   or  executions   on property of the debtor duly recorded and not dissolved are not, however, affected by the order
 

IF  YOU  ARE  THE  DEBTOR,  WHY  WOULD  YOU  FILE  FOR INSOLVENCY?

     The debtor will get a discharge
      A corporation doesn’t get a discharge 
     The partners in a partnership will get a discharge

Insolvency Law

ACT NO. 1956

SECTION  14.     Application.  —  An  insolvent  debtor,  owing debts exceeding in amount the sum of one thousand pesos, may apply to be discharged from his debts and liabilities by petition to the Court of First Instance of province or city in which  he  has  resided  for  six  months  next  preceding  the filing of such petition. In his petition he shall set forth his of residence,  the  period  of  his  residence  therein  immediately prior to filing said petition, his inability to pay all his debts in full, his willingness to surrender all his property, estate, and effects not exempt from execution for the benefit of his creditors,  and  an  application  to  be  adjudged  an  insolvent.
He  shall  annex  to  his  petition  a  schedule  and  inventory  in the  form  herein-after  provided.  The  filing  of  such  petition shall be an act of insolvency.
 
SECTION  15.     Statement  of  debts  and  liabilities.  —  Said  schedule  must  contain  a  full  and  true  statement  of  all  his debts  and  liabilities,  together  with  a  list  of  all  those  to
whom, to the best of his knowledge and belief, said debts or liabilities  are  due,  the  place  of  residence  of  his  creditors and  the  sum  due  each  the  nature  of  the  indebtedness  or liability    and    whether    founded    on    written    security, obligation,   contract   or   otherwise,   the   true   cause   and consideration thereof, the time and place  when and where
such indebtedness or liability accrued, a declaration of any existing pledge, lien, mortgage, judgment, or other security for the payment of the debt or liability, and an outline of the
facts  giving  rise  or  which  might  give  rise  to  a  cause  of action against such insolvent          debtor.
 
SECTION 16.    Description of real and personal property. — Said  inventory  must  contain,  besides  the  creditors,  an accurate  description  of  all  the  real  and  personal  property,
estate,   and   effects   of   the   petitioner,   including   his homestead, if any, together with a statement of the value of each  item  of  said  property,  estate,  and  effects  and  its
location, and a statement of the encumbrances thereon. All property exempt by law from execution 2 shall be set out in said  inventory  with  a  statement  of  its  valuation,  location,
and the encumbrances thereon, if any. The inventory shall contain  an  outline  of  the  facts  giving  rise,  or  which  might give  rise,  to  a  right  of  action  in  favor  of  the  insolvent
debtor.
 
SECTION   17.      Verification,   form   of   .   —   The   petition, schedule, and inventory must be verified by the affidavit of the  petitioner,  annexed  thereto,  and  shall  be  in  form
substantially    as    follows:    "I,    _______________.,    do solemnly   swear   that   the   schedule   and   inventory   now delivered by me contain a full, correct, and true discovery of
all my debts and liabilities and of all goods, effects, estate, and  property  of  whatever  kind  or  class  to  me  in  any  way belonging.  The  inventory  also  contains  a  full,  true  and
correct statement of all debts owing or due to me, or to any person or  persons in trust for  me and  of all securities and contracts whereby any money may hereafter become due or
payable  to  me  or  by  or  through  which  any  benefit  or advantage whatever may accrue to me or to my use,  or to any  other  person  or  persons  in  trust  for  me.  The  schedule
contains  a  clear  outline  of  the  facts  giving  rise,  or  which might  give  rise,  to  a  cause  of  action  against  me,  and  the inventory  contains  an  outline  of  the  facts  giving  rise,  or
which might give rise, to any cause of action in my favor. I had   no   lands,   money,   stock,   or   estate,   reversion,   or expectancy, or property of any kind, except that set forth in
said inventory. I have no instance created or acknowledged a  debt  for  a  greater  sum  than  I  honestly  and  truly  owe.  I have not, directly or indirectly, concealed, fraudulently sold,
or  otherwise  fraudulently  disposed  of,  any  part  of  my  real or personal property, estate, effects, or rights of action, and I have not in any way compounded with any of my creditors
in order to secure such creditors, or to receive or to accept any profit or advantage therefrom, or to defraud or deceive in any manner any creditor to whom I am indebted. So help
me God."
 
SECTION 18.    Order of court declaring petitioner insolvent; Publication notice. — Upon receiving and filing said petition, schedule, and inventory, the  court,  or the judge thereof in vacation,  shall  make  an  order  declaring  the  petitioner insolvent, and directing the sheriff of the province or city in which the petition is filed to take possession of, and safely keep,  until  the  appointment  of  a  receiver  or  assignee,  all the  deeds,  vouchers,  books  of  account,  papers,  notes, bonds,  bills,  and  securities  of  the  debtor,  and  all  his  real and  personal  property,  estate,  and  effects,  except  such  as may  be  by  law  exempt  from  execution.  3  Said  order  shall further forbid the payment to the debtor of any debts due to him and the delivery to the debtor, or to any person for him, and  the  transfer  of  any  property  by  him,  and  shall  further appoint  a  time  and  place  for  a  meeting  of  the  creditors  to choose an assignee of the estate. Said order shall designate a   newspaper   of   general   circulation   published   in   the province  or  city  in  which  the  petition  is  filed,  if  there  be one,  and  if  there  be  none,  in  a  newspaper  which,  in  the opinion of the judge, will best give notice to the creditors of
the said insolvent, and in the newspaper so designated said order shall be published 4 as often as may be prescribed by the court or the judge The time appointed for the election of
an assignee shall not be less than two, nor more than eight, weeks from the date of the order of adjudication. Upon the granting of said order all civil proceedings pending against said   insolvent   shall   be   stayed.   When   a   receiver   is appointed,  or  an  assignee  chosen,  as  provided  in  this  Act, the  sheriff  shall  thereupon  deliver  to  such  receiver  or assignee  chosen,  as  provided  in  this  Act,  the  sheriff  shall thereupon deliver to such receiver or assignee, as the case may  be,  all  the  property,  assets,  and  belongings  of  the insolvent which have come into his possession, and he shall be  allowed  and  paid  as  compensation  for  his  services  the same  expenses  and  fees  as  would  by  law  be  collectible  if the  property  had  been  levied  upon  and  safely  kept  under attachment.
 
SECTION 19.    Publication of order. — A copy of said order shall immediately be published 5 by the clerk of said court, in  the  newspaper  designated  therein,  for  the  number  of
times and as prescribed by the court  or  the judge thereof, and  a  copy  of  said  order  shall  be  delivered  personally  or sent  by  the  clerk  forthwith  by  registered  mail,  postage prepaid, to all creditors named in the schedule. There shall be deposited, in addition to twenty-four pesos, which shall be received by the clerk on commencing such proceedings, a  sum  of  money  sufficient  to  defray  the  expense  of  the ublication  ordered  by  the  court,  necessary  postage,  and ten  centavos  for  each  copy,  to  be  delivered  personally  or mailed  to  the  creditors,  which  last-named  sum  is  hereby constituted  the  legal  fee  of  the  clerk  for  the  personal delivery or mailing required by this section.