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