Becoming Bankrupt in Scotland (Sequestration)

Becoming Bankrupt in Scotland

Bankruptcy (also known as sequestration in Scotland) is the legal process by which you are formally declared insolvent. This means you can’t pay your debts as they become due.

To be made bankrupt, a sheriff court has to issue a bankruptcy petition against you. This can happen for two reasons:

▪️you can apply to the court if you’re unable to pay your debts

▪️your creditors apply to make you bankrupt if you owe them £3,000 or more

Before issuing a bankruptcy order, your creditors must have issued you with a ‘charge for payment’ or a ‘statutory demand’ and the time limit for you to reply must have elapsed.

For a ‘charge for payment’ the time limit to reply is 14 days and for a ‘statutory demand’, 21 days.

When will your Bankruptcy end?

After 12 months you’re usually discharged (freed) from your bankruptcy. If you’re making a contribution to a trustee, you must continue to pay it after you’ve been discharged.

What is Bankruptcy?

Bankruptcy is a form of insolvency that writes off debts if you can’t afford to repay them, giving you a fresh start. It’s a legal process that’s suitable if you can’t repay your debts in a reasonable amount of time.

Benefits of bankruptcy

▪️Your unsecured debts will be written off completely

▪️Your creditors can’t take any further legal action against you or harass you to recover your debts

▪️They must also stop charging interest and adding other charges

▪️You won’t receive any further contact from your creditors

Risks of bankruptcy

▪️Assets such as your home or vehicle may be included in your bankruptcy

▪️Some jobs will be affected, such as legal or financial roles

▪️Bankruptcy will have a negative impact on your credit file and will appear on it for six years

▪️Your bankruptcy is recorded on a public register

How to go Bankrupt

Either you will make a petition to the court, or someone else will petition to make you bankrupt. If someone else has asked for you to be made bankrupt, you’ll be made aware of it by the court. If you don’t want to be made bankrupt you’ll need to prove that you don’t owe the person applying for money, or you’ll need to pay back any money you do owe them.

 

The first stages of the bankruptcy process are usually managed by an official receiver, who works for the Insolvency Service. They are normally your trustee unless an insolvency practitioner takes on that role. Your trustee explains the bankruptcy process to you and sells any goods or assets that you own which are not everyday household items or things needed to do your job.

Steps to take if your bankruptcy is approved

If your bankruptcy is approved, you’ll have an interview with the official receiver, either by telephone or in-person. You must attend this interview and co-operate with the official receiver for the bankruptcy to run as smoothly as possible. If you don’t, the bankruptcy may go on longer than the usual twelve months or you may have to attend court.

It helps to be prepared with the information the official receiver needs. You’ll need to tell them everything about your finances, including all debts, bank accounts, assets, and changes in income. You will need whatever paperwork you have to prove what you’re telling them; the receiver will tell you exactly what paperwork you’ll need before the interview. You should also tell them if you need special help, if there’s anything that needs to be sorted out urgently, or you need more time to find paperwork for the meeting.

Bankruptcy costs

If you apply for your own bankruptcy, you’ll need to pay £680 to cover:

▪️£130 adjudicator fee

▪️£550 to the official receiver managing the bankruptcy.

You can pay in instalments, but you’ll need to pay the whole amount before you submit your bankruptcy application.

If your debts are below £20,000 you may qualify for a DRO (Debt Relief Order) which, with a one-off payment of only £90, will clear all your debts. To see if you qualify try our Debt Relief Calculator.

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What happens to your assets in bankruptcy?

You can keep any items you need for your job, anything belonging to or exclusively used by a child (within reason), and everyday household items like furniture and clothing. If your household items are valuable they can be sold, but they will be replaced with a cheaper equivalent.

Can I go bankrupt and keep my house?

If you do not have enough assets to pay your creditors without selling your house, it can be sold as a part of the bankruptcy procedure.

If you’re the sole owner of the property, the house will be sold and any money left after paying off the mortgage will be used to pay off your debts.

If you own the property jointly with someone else your share of the equity in the property will be used to pay off your share of the mortgage and any money left will be used to pay off your debts.

If you have a partner, spouse, or former spouse, or children living at the property, the trustee usually can’t sell the property without your permission for a year after the date of your bankruptcy. If after three years there’s less than £1000 equity remaining in the house then your house will not be sold and the ownership will not return to you. If more than £1000 equity remains after this time, the house may still be sold and a charging order will state the amount that will be taken from the sale towards repaying your debts.

 You can stop the sale of your house if a family member or friend buys out the equity in your house.

Want to know more about going bankrupt in Scotland?

Read all about bankruptcy in Scotland (Sequestration) here

Bankruptcy FAQs

What is bankruptcy?

Bankruptcy is a form of insolvency that writes off debts if you can’t afford to repay them, giving you a fresh start. It’s a legal process that’s suitable if you can’t repay your debts in a reasonable amount of time.

How much does it cost to go bankrupt?

If you apply for your own bankruptcy, you’ll need to pay £680 to cover:

▪️£130 adjudicator fee

▪️£550 to the official receiver managing the bankruptcy.

You can pay in instalments, but you’ll need to pay the whole amount before you submit your bankruptcy application.

If your debts are below £20,000 you may qualify for a DRO (Debt Relief Order) which, with a one-off payment of only £90, will clear all your debts.  To see if you qualify try our Debt Relief Calculator.

How do you go bankrupt?

Either you will make a petition to the court, or someone else will petition to make you bankrupt. If someone else has asked for you to be made bankrupt, you’ll be made aware of it by the court. If you don’t want to be made bankrupt you’ll need to prove that you don’t owe the person applying for money, or you’ll need to pay back any money you do owe them.

The first stages of the bankruptcy process are usually managed by an official receiver, who works for the Insolvency Service. They are normally your trustee unless an insolvency practitioner takes on that role. Your trustee explains the bankruptcy process to you and sells any goods or assets that you own which are not everyday household items or things needed to do your job.

Does going bankrupt clear all of your debts?

Most debts can be included in bankruptcy and when you’re discharged, these debts will be written off.

Some debts, however, cannot be included in bankruptcy. This includes debts such as child maintenance arrears, TV license arrears, and criminal fines.

What happens to your assets in bankruptcy?

You can keep any items you need for your job, anything belonging to or exclusively used by a child (within reason), and everyday household items like furniture and clothing. If your household items are valuable they can be sold, but they will be replaced with a cheaper equivalent.

Can I keep my house and go bankrupt?

If you do not have enough assets to pay your creditors without selling your house, it can be sold as a part of the bankruptcy procedure.

If you’re the sole owner of the property, the house will be sold and any money left after paying off the mortgage will be used to pay off your debts.

If you own the property jointly with someone else your share of the equity in the property will be used to pay off your share of the mortgage and any money left will be used to pay off your debts.

If you have a partner, spouse, or former spouse, or children living at the property, the trustee usually can’t sell the property without your permission for a year after the date of your bankruptcy. If after three years there’s less than £1000 equity remaining in the house then your house will not be sold and the ownership will not return to you. If more than £1000 equity remains after this time, the house may still be sold and a charging order will state the amount that will be taken from the sale towards repaying your debts.

You can stop the sale of your house if a family member or friend buys out the equity in your house.

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