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Bankruptcy in Scotland - Sequestration

What is Bankruptcy?

Ways to Apply for Bankruptcy in Scotland

Full Administration Qualifying Criteria

Minimal Assets Process Qualifying Criteria

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

 

1. Owe between £1,500 and £17,000.

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

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

4. Pay the £90 application fee.

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

6. Get 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.

 

Appoint Your Own Bankruptcy Trustee

You can appoint an insolvency practitioner as your bankruptcy trustee. To do this you must be able to contribute money. This could be a monthly payment from your income. It could be money from the sale of an asset. Your trustee takes their fees from your payments. Self-appointment is only available for Full Administration applications.

 

Appointing your own trustee reduces uncertainty. You’ll agree a monthly payment in advance. You’ll agree how your assets are dealt with in advance. Direct applications to the Accountant in Bankruptcy work differently. A trustee gets assigned after your bankruptcy has happened. They will decide what (if anything) you will pay. They will decide what happens to your assets.

 

Our insolvency partners (represented in our forum by David, Paul, and Kevin) act as bankruptcy trustees. To discuss the benefits of appointing your own trustee, please get in touch.

 

Advice from An Approved Money Adviser

 

You cannot apply for sequestration without first getting debt advice. This advice is provided by an Approved Money Adviser. An Insolvency practitioner can undertake this role. Other money advisers work at Citizens Advice or within Local Authority advice teams. To find your local money advisers click here.

 

The adviser checks you cannot afford your debts. You’ll provide documents like payslips and bank statements to help with this. You’ll get asked about your debts and any assets you own. You may also have to provide ID.

 

The adviser gives you a Debt Advice and Information Package. They tell you about the benefits and drawbacks of bankruptcy. They’ll advise you about other suitable debt solutions. You don’t pay for this advice, it’s a free service. To apply to become bankrupt you’ll need a “Certificate for Sequestration”. If you qualify to apply, your money adviser provides this document.

 

Certificate for Sequestration

 

This certificate is your proof of being “insolvent”. Insolvency means you cannot repay your debts when they’re due. It also means you don't have enough assets to repay your debts. It’s issued by a money adviser (see above). No fee is charged for issuing this certificate to you. You cannot apply for Scottish bankruptcy without a Certificate for Sequestration.

 

You only have thirty days to use your Certificate for Sequestration. You must apply to become bankrupt within thirty days of it being issued. If you’re too late, you’ll need a new certificate.

 

Moratoriums to Stop Debt Collection Activity

 

Your money adviser can register you for a moratorium. This protects you from creditor legal action for six weeks. It gives you breathing space while you submit your application. This may be useful if debt collection calls or letters are causing distress. A moratorium protects you from aggressive debt collection methods.

 

Consequences, Benefits, and Drawbacks

 

You’ll get discharged from Scottish bankruptcy after one year (six months for MAP cases). Money owed to your creditors gets legally written off. This period can get extended if your conduct causes concern. Payment and windfall requirements run for four years (see below).

 

It’s likely you’ll need to get a new bank account. Your options are typically restricted to basic accounts. Only apply for an account to banks you don’t owe money. Basic accounts are provided without an overdraft of cheque book. You should be able to get a debit card and access to online banking.

 

Your trustee may assess that you can afford a payment. This is called a Debtor Contribution Order. It runs for four years and is reviewed periodically. Your personal expenditure will be limited during this time. Your money gets used to cover costs and repay your creditors.

 

Money kept in an approved pension scheme is usually safe. It’s treated differently to other assets (like your home or car). However, if you take a lump sum from your pension it’s treated as income. You’ll likely have to pay it over to your trustee.

 

You’re required to cooperate with your trustee. If you don’t, your discharge could get delayed. Your trustee will require you to provide information periodically. If you receive money or property, you must notify your trustee. This money (or asset) gets used to help repay your debts. This requirement lasts for four years. Examples include windfalls like an inheritance or lottery win. You must also notify the trustee about extra income earned from work.

 

If you own assets they will “vest” in your trustee. Your trustee uses your assets to help repay your debts. If you own a home it could be at risk of getting sold. Cars worth less than £3,000 should not cause an issue. You must however prove you have a reasonable need to keep the vehicle.

 

Certain types of debt aren’t included in sequestration in Scotland. This includes fines, compensation, penalties, and maintenance payments imposed by a court. Student loans and debts incurred via fraud are also excluded.

 

If you have a joint debt the other borrower isn’t protected. The lender will seek repayment of the full balance from them. The same principle applies if someone has acted as a guarantor for you. You cannot choose to exclude these types of debt. You also cannot continue repaying them directly.

 

You should review your household and vehicle insurance policies. 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. Check for bankruptcy clauses when you obtain new insurance policies. Getting business insurance products is more difficult (but still possible). Approach a specialist insurance broker for help with this.

 

Your personal details get added to the Register of Insolvencies. The register can be searched online. It will include your name, address, and dates related to your sequestration.

 

You cannot serve as a company director until you’re discharged. Bankruptcy may also be disruptive if you are self-employed. This applies in particular if you employ staff or lease premises. Extra considerations also apply if you work in the police, prison service, financial services, military, or the legal profession. All employees should check their contract of employment before applying. You cannot become an MP or MSP. Bankruptcy in Scotland could also affect applications for British Citizenship.

 

Prior to your discharge you’re restricted from getting new credit. Your credit rating and ability to get credit will be seriously damaged. This could make it more difficult to rent a new home. This damage will continue for some time after your discharge. In the longer-term you can take steps to improve your credit rating.

 

You may also be required to enter a financial education program. This program aims to develop money skills to help prevent future money problems. It’s your trustee’s decision whether you’ll need to attend this program.

 

Bankruptcy Restriction Orders

 

If your behaviour is considered dishonest or blameworthy, a BRO could be issued. This applies to your behaviour before and during bankruptcy. Examples of such behaviour 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 a common reason for issuing a Bankruptcy Restriction Order. BROs get published on the Accountant in Bankruptcy’s website.

 

These orders impose restrictions upon you for a further two to five years. If your misconduct is deemed especially serious, the sheriff court can issue an order lasting up to fifteen years.

 

Alternatives to Sequestration

 

There are several other debt solutions to consider. Each has different benefits and drawbacks. Many people qualify for several options, so good debt advice is necessary.

 

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

 

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

 

A debt management plan is an informal repayment scheme. It provides no formal protection from creditors. Assets aren’t taken into account. Unlike formal debt solutions, your personal details aren’t added to a public register. Debt will not usually get written off. Read more…

 

Get Bankruptcy Advice

 

For expert advice about debt solutions, please get in touch. Our debt advice team is friendly and experienced. We’ve been helping Trust-Deed.co.uk visitors since 2007. Any contact with us is entirely confidential. We’ll identify suitable options that can relieve stress and deal with your debts.

 

 

Author: Andrew Graveson

Qualified Debt Adviser & Trust-Deed.co.uk Founder

 

Page Last Updated: 16/12/2019

 

 

 

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(c) Channel Active Limited. Company Number: 06412452. Data Protection Registration: Z1332750.

Telephone calls may be monitored or recorded. Authorised and regulated by the Financial Conduct Authority.

Trust-Deed.co.uk, Clyde Offices, 2nd Floor, 48 West George Street, Glasgow, G2 1BP. Tel: 0141 2490416.