Bankruptcy (Sequestration)

To qualify to apply for Minimal Assets Process bankruptcy you must:

1. Owe between £1,500 and £25,000 (see note below).

2. Live in Scotland (or have recently left).

3. Not have been bankrupt in Scotland for five years.

4. Pay the application fee (if applicable).

5. Have received benefits for the past six months or/

6. Be assessed as having no surplus income.

7. Not own any land or property.

8. Not own an asset worth more than £1,000 (excluding vehicles).

9. Not own total assets worth more than £2,000.

10. Not own a vehicle worth more than £3,000.

11. Have received debt advice from a money adviser.

If you can afford to contribute towards your debts, you can appoint an insolvency practitioner to act as your bankruptcy trustee.

The contribution is usually a monthly payment from your income, but it could also be money from the sale of an asset. Your trustee draws their fees from your payment(s).

Self-appointment of a trustee is only available for Full Administration applications (not MAP).

Appointing your own trustee reduces uncertainty because you’ll agree a monthly payment in advance. You’ll also agree how your assets will be dealt with in advance.

A direct bankruptcy application (to the Accountant in Bankruptcy) works differently because a trustee is assigned after the approval of your application. The assigned trustee will then decide what (if anything) you will pay and what will happen to any assets you own.

Our insolvency partners (represented in our forum by Paul and Kevin) can act as your self-appointed bankruptcy trustee. To discuss this possibility further please get in touch.

You cannot apply for sequestration without first getting debt advice from an “Approved Money Adviser”.

An insolvency practitioner can act as an Approved Money Adviser, as can money advisers working at Citizens Advice or within Local Authority money advice teams.

Your money adviser checks that you cannot afford your debts using documents like your payslips and bank statements. You’ll be asked to provide information about your debts and any assets you own.

The adviser provides you with a Debt Advice and Information Package and they’ll tell you about the benefits and drawbacks of bankruptcy in comparison to other debt solutions.

To apply to become bankrupt you’ll need to receive a “Certificate for Sequestration” provided by your money adviser. The debt advice they give you, and being given the Certificate for Sequestration itself, are both free services.

The Certificate for Sequestration is your documentary proof of being “insolvent”. This provides formal proof that you cannot repay your debts when they’re due and/or you don’t have assets that you could sell to repay your debts.

You only have thirty days to use your Certificate for Sequestration. If you don’t submit your bankruptcy application within thirty days you’ll need to get a new Certificate.

Your money adviser can register you for a moratorium which protects you from creditor legal action for six months and can be implemented once each year.

A moratorium could help if you:

1. Need time to get debt advice

2. Need time to consider debt solution options

3. Need time to gather together financial information

4. Suffer stress or anxiety due to your financial situation

Moratoriums can also have drawbacks:

1. Your credit rating is likely to be affected

2. Your personal information is published in an online register

3. Your debt could increase due to continued interest and/or charges

Applications are usually submitted by a money adviser, but it’s possible (though not necessarily advisable) to apply directly yourself.

Your credit rating and ability to get credit will be seriously damaged and this damage will continue for some time after your discharge.

• Your personal details are listed on the Register of Insolvencies. The register can be searched online and will include your name, address, and key dates related to your sequestration.

• You’re required to cooperate with your trustee; if you don’t your discharge could be delayed.

• Extended restrictions may apply if your prior financial conduct has caused concern. See the Bankruptcy Restriction Order section below.

• You’ll be discharged from Scottish bankruptcy after one year (reduced to six months for MAP cases) and money owed to your creditors gets legally written off.

• If you own assets they will “vest” in your trustee, meaning they can use them to help repay your debts. If you own a home it could be at risk of being sold. Cars worth less than £3,000 should not cause an issue if you can demonstrate a reasonable need to keep a vehicle.

• Your trustee may assess that you can afford a payment (called a Debtor Contribution Order) which runs for four years and is reviewed periodically. Your personal expenditure will be restricted because your surplus income is used to help repay your creditors.

• You must notify your trustee about extra income earned from work.

• If you receive money or property you must notify your trustee; it might have to be used to help repay your debts. This requirement lasts for four years and includes windfalls like an inheritance or lottery win.

• Prior to your discharge you’re restricted from getting new credit.

• It’s likely you’ll need to get a new bank account and your options are typically restricted to basic bank accounts. You should still be able to get a debit card and access to online banking.

• Certain types of debt aren’t included in sequestration in Scotland. This includes fines, compensation, student loans, and debts incurred via fraud.

• If you have a joint debt your joint borrower receives no protection from your bankruptcy. The lender can still demand repayment of the full balance from them.

• The same principle applies if someone has acted as a guarantor for you; the guarantor remains liable for repaying the loan. You cannot choose to exclude guarantor loans from sequestration in Scotland and you cannot continue repaying them directly.

• No special provision is made for money owed to family members or friends. You will not receive an allowance that enables you to continue repaying them.

• Extra considerations may apply if you work in the police, prison service, financial services, military, or the legal profession. All types of employees should check their contract of employment before applying to become bankrupt in Scotland.

• Bankruptcy may be especially disruptive if you are self-employed; in particular if you employ staff or lease premises.

• You cannot serve as a company director until you’re discharged.

• You cannot become an MP or MSP. Other types of public office may also be affected.

• Applications for British Citizenship may be affected.

• You should review your household and vehicle insurance policies because some insurers insert bankruptcy clauses into their policies. If your policy has such a clause, you will not be covered if you need to make a claim.

• Getting business insurance products may be more difficult than getting personal insurance policies. It’s generally still possible, but contact a specialist insurance broker for help with this.

• You may be required (by your trustee) to enter a financial education program that aims to develop money skills that help to prevent future debt problems.

• Money kept in an approved pension scheme is usually safe as it’s treated differently to assets like your home or car. However, if you actually take a lump sum from your pension it’s treated as income and you’ll probably have to pay it to your trustee.

• In the longer-term you can take steps to improve your credit rating.

Most types of debts are dealt with by becoming bankrupt:

• Credit Cards

• Bank Overdrafts

• Bank Loans

• Payday Loans

• Guarantor Loans (like Amigo and George Banco)

• Store Cards

• High Cost Loans (like 118 118 Money or Everyday Loans)

• Catalogues

• Debt Purchasers & Debt Collection Agencies

• Council Tax Arrears

• Credit Union Loans

• Utility Arrears

• Bounce Back Loan

You must continue paying for essential services and goods after becoming bankrupt.

Priority expenses include your mortgage or rent, council tax, gas, electricity, and secured finance on vehicles and other essential goods.

Joint bankruptcy applications do not exist in Scotland, so couples must make individual applications.

Couples can appoint a single trustee so that their affairs are dealt with in a coordinated way.

If your behaviour prior to bankruptcy is considered dishonest or blameworthy, a Bankruptcy Restriction Order (BRO) could be issued.

Examples of potentially dishonest or blameworthy conduct include giving away assets, borrowing money you knew you could not repay, or repaying friends or relatives at the expense of other creditors.

Excessive gambling is also a common reason for issuing a Bankruptcy Restriction Order, which are published on the Accountant in Bankruptcy’s website.

These orders impose two to five years of extra bankruptcy restrictions upon you.

If your misconduct is deemed especially serious, the sheriff court can issue an order lasting up to fifteen years.

A creditor owed £5,000 or more can use the Scottish legal process to make you bankrupt.

There are several other debt solutions to consider, each of which has different benefits and drawbacks.

You may qualify for several debt solution options, so good debt advice is necessary.

Protected trust deeds are another type of personal insolvency. They run for a minimum of four years and your assets may be dealt with more flexibly than under bankruptcy. Read more…

The Debt Arrangement Scheme is a formal debt management plan providing you with protection from creditors while you repay your debts. Unlike sequestration, your assets aren’t taken into account and debt will not usually be written off. Read more…

A debt management plan is an informal repayment scheme that does not provide formal protection from creditors or debt write off. Your assets aren’t taken into account and, unlike formal debt solutions, your personal details aren’t added to a public register. Read more…

For expert advice about debt solutions, please get in touch.

Our debt advice team is friendly, experienced, and knowledgeable.

All contact with our advice team is confidential and we’ll identify suitable debt solutions that relieve stress and deal with your debts.

You’re also welcome to ask bankruptcy questions in our debt advice forum where debt experts can share their sequestration knowledge with you