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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 your 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 four 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 to recover the debt.
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.
There are two ways to be declared bankrupt in Scotland.
If you want to get help before creditors act, you could declare yourself bankrupt. It is often the most effective way to deal with problem debt.
To declare yourself bankrupt in Scotland you must:
In addition to the above, you will need to provide evidence that you are unable to pay back your debt. At Cleanslate, we can do this by providing a Certificate for Sequestration, a formal document which verifies that you are unable to pay your debts as they fall due.
In the event you have been unable to pay your debts to a creditor, they may begin a legal process to make you bankrupt. Creditors cannot make you bankrupt on their own, and the debt owed must be at least £3,000. The process creditors usually follow to make a debtor bankrupt in Scotland is as follows.
Before anything else, the creditor must apply to the Sheriff Court providing evidence that you owe them money and that you have not paid them. If successful, the court will grant a Decree - legal confirmation that a debt exists between you and your creditor, and that it must be paid.
Once a Decree has been granted, your creditor can instruct a Sheriff Officer to serve you with a Charge for Payment. A Charge for Payment is a legal document stating that your debt must be paid in full within 14 days otherwise your creditor can enforce payment.
In some instances, you may be able to apply for time to pay.
Once the time limit on your Charge for Payment runs out, it will be considered an Expired Charge for Payment. Once expired, this constitutes Apparent Insolvency meaning the creditor is then able to takes steps to enforce the debt.
The creditor can then petition the court to make you bankrupt and nominate either an Insolvency Practitioner or the Accountant in Bankruptcy to act as Trustee.
At Cleanslate, we’ve been helping people with their debt problems for over 20 years, with more than 20,000 people helped so far. Our tried and trusted process ensures every single client gets the best advice possible, specific to their own circumstances.
When you first call our advice team, we will perform an initial consultation, this can be done over the phone or at any of our offices in Glasgow, Edinburgh or Aberdeen. This is a free, no obligation conversation to understand more about you, your debt, and your ability to repay it.
When you’re comfortable to proceed, we’ll take a deeper dive into your circumstances. Our goal here is to understand how much debt you have, what income and assets you have available to you and, most importantly, what you can afford (if anything) to pay back to your creditors.
Based on all the information available, your money adviser will discuss the debt solutions that may be appropriate to your circumstances. This might be a Debt Arrangement Scheme (DAS), Protected Trust Deed or Sequestration (Bankruptcy).
Once you’re happy to move forward with the chosen debt solution, in this case, Bankruptcy, your money adviser with prepare the paperwork for you. Your adviser will then provide a formal certificate (Certificate for Sequestration) verifying that you are unable to pay your debts as they fall due. Once the application fee has been paid, your adviser will submit your bankruptcy application to the Accountant in Bankruptcy.
The paperwork is done. Your application will now be reviewed by the Accountant in Bankruptcy. Once accepted and entered onto the Register of Insolvencies, your bankruptcy will begin.
If you are not able to pay your debts, and there is no prospect that this will change, you are able to make an application for your own bankruptcy to the Accountant in Bankruptcy. If the Accountant in Bankruptcy approves your application and declares you bankrupt, then a Trustee will be appointed to manage your estate.
There are two types of bankruptcy in Scotland:
If you can afford to make a regular payment towards your debts and/or you own any material assets (i.e. as a general rule individual assets worth more than £1k) and/or your unsecured debts are over £25k, then Full Administration Bankruptcy would apply.
If you choose to appoint a Trustee for Full Administration Bankruptcy through Cleanslate, this will be Blair Nimmo or Lynne Flower.
The Trustee will assess your income and expenditure and agree a contribution that you make on a monthly basis. This is called a Debtor Contribution Order (DCO) and will be approved by the Accountant in Bankruptcy. If your circumstances remained the same, you would be expected to make this payment for 4 years. If your circumstances change then your DCO can be varied. The Trustee will also agree how any material assets you own should be realised.
The Minimal Asset Process (MAP) applies where there is no realistic prospect that any money can be repaid to your creditors. So if your debts are under £25k, you don’t own any material assets and your income comes solely from state benefits (or you have earned income but are assessed as being unable to afford to make any payment to your creditors), then MAP may be an option for you. Once this type of bankruptcy has been awarded then, unless your circumstances change, you will not be required to make any monthly payment and you will be discharged after 6 months.
Cleanslate do not administer the Minimal Asset Process, however we are still happy to chat with you and help to understand your financial circumstances. If the Minimal Asset Process is appropriate for you, we would be happy to signpost you to a free money advice service for further advice and help.
There are numerous advantages of bankruptcy, a few of which are:
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.
There is an application fee to be paid to the Accountant in Bankruptcy before applying for bankruptcy. When applying for full administration bankruptcy, the fee is £150. When applying for the minimal asset process, the fee is £50. If you are in receipt of prescribed benefits, there is no application fee.
All initial advice provided by Cleanslate is free.
The Trustee’s fees in bankruptcy will be met from funds collected from your contribution payments and the realisation of any assets currently owned by you or subsequently acquired by you during the term of your bankruptcy. The fees will vary depending upon the circumstances of the case.
The Trustee’s fees are approved by the Accountant in Bankruptcy. You and your creditors will be notified before the fee is taken. You will both have the opportunity to appeal the sum if desired, in accordance with Section 134 of the Bankruptcy Scotland Act 2016.
To find out more about managing your finances and receive free debt advice, you can visit the Money Helper.
