Important advice on going bankrupt or declaring yourself bankrupt in Scotland

If you live in Scotland and are considering personal bankruptcy (sequestration), there are certain issues that you need to be aware of. These include an understanding of what will happen to your assets, and also the long-term effect of sequestration on your credit file.

But first, you should know a little bit about how sequestration works in Scotland. To be eligible to file for bankruptcy, you need to meet the following criteria:

• owe unsecured debts of at least £1,500
• have proof of your ‘apparent insolvency’ – your creditor can confirm the debt to the court, or alternatively sign a form agreeing to your own file for sequestration

If you can’t prove apparent insolvency via your creditor, a third alternative exists called the Minimal Asset Process, or MAP (formerly known as Low Income Low Assets, or LILA bankruptcy).

Am I eligible for Minimal Asset Process sequestration?

If you have low income and few assets, you may be able to use this system to file for sequestration in Scotland. Again, specific criteria are required to be eligible, including:

• debts totalling between £1,500 and £17,000
• residence in Scotland, but not owning your home
• assets valued at less than £2,000 – individual assets should be valued at no more than £1,000 each, apart from a car which can be worth up to £3,000

How can I apply for sequestration in Scotland – the bankruptcy petition?

Professional advice from a recognised money advisor is required prior to completing your sequestration application form. Proof will be needed that you are in fact eligible to file for your own sequestration, and a fee of £200 should be included with your application.

Once the Accountant in sequestration has received your petition, it generally takes around five working days for your bankruptcy to be confirmed, assuming they have all the information needed.

What are the consequences of sequestration?

Once sequestration has been established, your Estate will pass into the hands of a Trustee. This may be the Accountant in Bankruptcy, or an independent Insolvency Practitioner. You may be wondering if you can keep your house in bankruptcy, or other assets such as a car.

Whether your house is sold depends on its inherent value, but the costs of selling are also taken into consideration. So although sale is a possibility, in some cases costs outweigh the benefits of sale.

If your car has a value of more than £3,000, it may be sold to realise money for your creditors. Should you need the vehicle for work, however, it would be probably be counter-productive to sell it as it is helping you to earn an income.

What about your credit file?

Entering sequestration will have an adverse and unavoidable effect on your credit file. It will remain on your file for six years following discharge from sequestration after which time you can start to rebuild your credit rating.

At this time, you could apply for a ‘credit builder’ credit card, designed for people with poor credit ratings. Other specialist loan providers may also offer you credit once discharged, but the interest rates will be higher than a ‘standard’ loan until you can prove your ability to make all repayments in full and on time.

Scotland Debt Solutions offers professional and confidential advice on sequestration. We have a number of offices around the country, and aim to help Scottish residents become free of debt.