The Bankruptcy Procedure in Scotland – Information for Debt-Help Seekers

The bankruptcy procedure in Scotland is also known as sequestration. Both terms mean the same thing – an inability to repay your outstanding unsecured debts now, or in a reasonable future timeframe. Personal bankruptcy procedures in Scotland are administered by the Accountant in Bankruptcy (AiB).

If you are struggling with debt and considering whether or not to enter bankruptcy, there are certain criteria that need to be met before you’re eligible to apply. Your creditors can declare you bankrupt if they are owed more than £3,000. During this process, a petition is lodged with the court, or if a group of creditors are involved, a joint petition is allowed.

Are you eligible to apply for your own bankruptcy?

In order to be eligible to file for bankruptcy in Scotland you need to:

• Owe more than £1,500
• Not have entered sequestration during the last five years
• Have lived in Scotland for longer than six months

You have to seek advice from an approved Money Advisor before applying for your own bankruptcy. They will confirm your eligibility and make sure that no better options exist by looking through your financial paperwork, letters and demands from creditors, as well as your income and the value of any assets.

As long as you are eligible, a Certificate of Sequestration will be granted which needs to be sent to the Accountant in Bankruptcy within 30 days of issue.

The application process

Your assigned Money Advisor will help you with your application, and submit it to the Accountant in Bankruptcy along with the Certificate of Sequestration. A fee of £200 must also be included.

Once the AiB has agreed the sequestration, a Trustee will be appointed to administer the bankruptcy process. This is often the same Money Advisor or insolvency practitioner who assisted with your application

The role of your Trustee

Your Trustee will calculate how much money, if any, you can afford to contribute to your debts, after all essential living expenses have been taken into account. The Common Financial Tool is used in this respect, and accurately assesses your levels of income and expenditure.

Any assets you own will be transferred to the Trustee, and potentially sold on to generate funds for your creditors. All communications must be made via the Trustee, as your creditors are no longer able to contact you directly.

Which assets are transferred?

This is one of the main concerns for people entering bankruptcy. It is possible that your home may need to be sold or remortgaged if there is equity available, in order to release money for your creditors.

If you have a vehicle worth more than £3,000, it may also have to be sold. Your Trustee could request that you sell it and purchase a cheaper vehicle if you need one to get to work, the difference going to pay your creditors.

How long does sequestration last?

The Accountant in Bankruptcy has the power to end your sequestration after a period of 12 months if all has gone well, and you have cooperated fully. This does not necessarily mean the end of the whole process however, as your Trustee may need to sell some remaining assets.

If your circumstances have changed and you are earning more money than at the start of sequestration, you could also be required to increase your level of monthly contribution and continue making payments for a further two years.

Are there any advantages to sequestration?

Although it is a drastic measure, there may be no alternative to entering sequestration. It is worth remembering that there are some advantages to this insolvency route, including:

• Your debts will be written off at the end of the process, and you can make a fresh start financially
• All creditor action is stopped once your sequestration has been confirmed, relieving some of the pressure

The sequestration will be marked on your credit file for a period of six years, but there are ways that you can build up your credit rating again.

Scotland Debt Solutions offers confidential advice to Scottish residents in debt. We can arrange a free initial consultation, and operate from five offices around Scotland.