Bankruptcy

Often people think of the word 'bankruptcy' as frightening, daunting, too serious to contemplate. However, for those that need it, bankruptcy can also be incredibly freeing - a way to get you back on track. Find out more below.

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How could bankruptcy help you?

Bankruptcy, or sequestration in Scotland, is a debt solution that allows you to take back control of your finances.

Often, people associate the word ‘bankruptcy’ with negative implications only; however bankruptcy can also be incredibly freeing to people who have become overwhelmed with debt and need to get back on track.

If it is unlikely you will be able to repay you debts in full and if it’s also unlikely creditors will agree to a trust deed, bankruptcy may be an option for you. In a bankruptcy, you will only pay what you can afford towards your debt over a fixed period of usually 4 years. We will contact your creditors to inform them you have been made bankrupt, and give you legal protection from any action they may wish to take. Whilst you will be required to pay what you can afford for four years, if you have co-operated with your Trustee, you may be discharged after one year. This means that the restrictions of bankruptcy would no longer apply. Of course the agreed payments would need to continue throughout the four year period.

When you contact Cleanslate for help with bankruptcy, our advisers will ask you some simple questions to fully understand your financial circumstances. Applying for bankruptcy is a serious step to take. If bankruptcy is not right for you, we will advise you of other options that might be more suitable.

Frequently asked questions

: There are numerous advantages of bankruptcy, a few of which are:

You will only pay back what you can afford.

On successful completion, your remaining debt will be written off.

We will deal with creditors on your behalf.

We will agree with you how your assets (such as your home and car) are affected in advance.

Existing earnings arrestments will be stopped after bankruptcy has been awarded.

: Your bankruptcy will be visible on your credit file for six years. This may impact your ability to obtain credit for a period after you have been discharged from the bankruptcy.

Your home may be affected in a bankruptcy. Control of your assets will be passed to your Trustee. It is not possible to exclude a property from a bankruptcy. Understanding the implications for your property is a high priority and we will talk to you about this in detail. There may be more options for dealing with your property in a trust deed and our advisers will talk these through with you when you call us.

There are certain positions you cannot hold until you have been discharged from bankruptcy.

You cannot act as a Member of Parliament, a Justice of the Peace, a member of a school board or local council.

You cannot be a director of a limited company or be involved in the day-to-day financial management of a company. If you are concerned this may affect you, simply ask one of our advisers when you contact us.

: This could be an option for you if you live in Scotland, have £1,500 or more of unsecured debt and are unable to pay what you owe. You cannot apply if you have been made bankrupt in the last 5 years.

: Similarly to a trust deed, a bankruptcy covers all your unsecured debts; however there are a few exceptions. These include student loans, court fines and debts incurred as a result of fraud or a breach of trust. Our advisers will explain if any of your debts cannot be included.

: All bankruptcies awarded in Scotland are recorded in the Register of Insolvencies which is free to access online. In order for someone to become aware of your bankruptcy, they would need to actively look your name up on this register. Your bankruptcy will remain on the Register of Insolvency for one year after the Trustee has been discharged, then it will no longer be visible.

: If you own your property, we will establish if there is any equity in the property by instructing a qualified surveyor to carry out a professional valuation. We will ask you to confirm the redemption figure for your mortgage and any other borrowing secured against the property. If there is equity, there are a number of options for addressing it, and we will discuss each of these with you. We will agree with you in advance how the bankruptcy will affect your property, giving you peace of mind before you make any commitment to apply for your bankruptcy.

: If you have a reasonable need to use your car, and it is worth under £3,000 it will not be affected by bankruptcy. If your vehicle is worth more than this, the Trustee will have an interest in it. Our advisers will be able to discuss this with you when you call them. Other possessions such as white goods, jewellery, mobile phones etc, will not be included.

: Yes, you can still hold a current account; however, in some cases, your bank may freeze or close your account once you have been made bankrupt. It is good practice to hold a current account with a bank you don't owe money to. Therefore, on some occasions our advisers may suggest you change banks.

: Your credit file will be updated to reflect the fact you have been made bankrupt; however, this will only be visible on your credit file for six years. Until you have been discharged from your bankruptcy, you will be unable to borrow more than £500 without telling the lender you have been made bankrupt. During your bankruptcy, and for a short period thereafter, you therefore might find it difficult to borrow; however, you may have less of a need to do so anyway.