This time last year, Steve had everything planned out. He had just been offered a great new job with a notable pay-rise and an abundance of perks. Happily married with his third child on the way, Steve was on cloud nine.
Work was underway on a grand extension to the house and Steve had just put a payment down for an indoor heated swimming pool and jacuzzi. Then disaster struck.
Steve was involved in an altercation at work that saw him lose both his job and his reputation. While searching for a new job, Steve found a new hobby in online gambling. This hobby soon became an unsuccessful addiction and was the eventual catalyst to the end of his marriage.
With a mountain of overheads to pay, Steve’s debt problems were spiralling out of control. He had maxed out his credit cards paying for the extension and the swimming pool, as well as, still trying to pay off his mortgage, legal teams and taxes.
Steve wasn’t keeping an eye on his bank account and his debt started to pile up incredibly fast. He then failed to pay his charge for payment within the allotted 14-day time period.
Tired and deflated, Steve needed a fresh start. After having a look at various debt solutions, and talking to a couple of different financial advisors and debt experts, he realised that declaring bankruptcy/sequestration was the best way to clear his debts and move on.
Does Steve’s unfortunate situation ring a bell? Are you also losing grip of your finances and assets? Get in touch today for a free initial consultation to discuss how our team of experts can help you overcome this road bump.
In this article, we will explain whether you are eligible for bankruptcy and how bankruptcy works in Scotland. We’ll also dissect the process of applying for bankruptcy, what happens to your assets as well as some of the advantages and disadvantages that bankruptcy entails.
What is Bankruptcy?
In Scotland, bankruptcy is referred to as Sequestration. It is the legal process to assist debtors who have no way of paying back the debts they owe to their creditor(s).
If your debts amount to more than the assets you own, bankruptcy may be a suitable option for you.
There are a couple of ways you can enter into bankruptcy:
You can file for bankruptcy by own initiative via the Accountant in Bankruptcy’s (AiB) sequestration form. Your money advisor or insolvency professional can help you complete the form.
You are declared bankrupt by your creditor through a Sheriff Court.
Bankruptcy tends to be the final option and gives you the opportunity to clear the best part of your debt. Any assets that you own may have to be used to pay off your debts.
How Bankruptcy works in Scotland
Financial jargon can be pretty confusing, so we’ve tried to simplify everything and give you the essential information on how sequestration works in Scotland.
To be eligible for Sequestration in Scotland you must:
Have debts worth over £1,500.
Not have been bankrupt in the last 5 years.
Live in Scotland, or you have lived in Scotland during the last year.
Your creditor also has the power to file for your bankruptcy if you owe them unsecured debts of £3,000 or more. By issuing a bankruptcy petition, the Sheriff court can approve the creditors’ application if they can confirm your ‘Apparent Insolvency’ to the court.
Once your bankruptcy application is approved, your assets are passed onto a trustee. The trustee takes over proceedings by selling your assets in order to pay back as much of your debt as possible to the creditor(s). Should you choose to take help from us here at Scottish Debt Experts and proceed with the sequestration, then one of our expert insolvency practitioners will act as your trustee.
If your apparent insolvency is denied by a Sheriff court order, or you’ve run into problems filing for your own sequestration, there’s a third form of bankruptcy called the Minimal Asset Process (MAP).
Minimal Asset Process (MAP)
Formerly known in Scotland as the Low-Income Low Asset process(LILA), MAP bankruptcy came into fruition in 2015.
As the name suggests, MAP aims to benefit debtors with low income and few assets. If you have no income and only receive money through the benefits scheme, you can also apply for MAP sequestration. There are however, a few requirements that deem your eligibility for the MAP process:
You must have debts totalling between £1,500 – £17,000 with no disposable income and little to no assets.
You must live in Scotland, but not own a home.
The total value of all your assets are worth less than £2,000.
You own no individual asset worth more than £1,000 with the exception of a car which can be worth up to £3,000.
The Minimal Asset Process runs for six months if you consistently meet the requirements of the process. After six months you will be discharged, but you’ll be under certain financial restrictions when applying for further credit for the following six months.
For more information about MAP, how to apply for MAP, or whether you are eligible to apply for MAP, please don’t hesitate to get in touch with us at Scottish Debt Expert for professional advice.
How can I apply for bankruptcy?
As discussed, there are two options available for you to apply for your own sequestration in Scotland:
Standard Sequestration (Bankruptcy)
Minimal Asset Process (MAP)
In both circumstances, it’s crucial that you seek advice from an approved money advisor or a licensed insolvency practitioner (IP). They have the expert knowledge to guide you through the process, confirm your eligibility and answer any questions you may have. And it takes a whole lot of stress off your shoulders giving the baton to a professional who knows what he/she is doing!
The first step is completing the application form. Make sure you’ve got access to your necessary financial documents that prove your eligibility. If you’re not too sure what you need, your money advisor will keep you right.
You’ve got the option to complete the form online, or you can also get a paper form delivered. We advise completing the online form as it’ll speed up the process.
If you’d like to access the form, there’s a Debtor Bankruptcy Application Pack available on the AIB website. Although only a sample form, it will give you a good indication of what information to provide and exactly what to expect from the form.
When you initiate the process and file for sequestration yourself, or with the help of a professional — the process doesn’t involve the courts and it’s a lot easier and quicker to set up than say a protected trust deed as the creditors do not get a vote on whether to accept or not.
Unfortunately, applying for bankruptcy isn’t free. The full sequestration application costs £200. However, if you’re deemed eligible for the Minimal Asset Process, the fee is reduced to £90.
There is the possibility of paying your application fee in instalments, although this depends on your financial position so we’d advise you ask your money advisor whether it applies to you.
If you have applied to enter MAP bankruptcy and you don’t meet the conditions, your advisor will issue a certificate of sequestration. This gives you 30 days to submit the full sequestration application where you will have to pay an additional £200 application fee.
What happens when I’m made bankrupt?
When you’re made bankrupt there are a few things that are set in stone. When you enter into sequestration:
Your assets may be used to pay off debt to creditor(s).
You must adhere to a set of rules called the ‘bankruptcy restrictions’.
Your sequestration will remain on your credit rating file for six years after discharge.
What will happen to my assets?
Once your application has been submitted and approved by the Sheriff court, the ownership of your assets are passed onto a trustee. Your trustee must be a licensed individual Insolvency Practitioner or the AIB.
One of the most pressing issues is not knowing what’s going to happen to your assets. We’ll discuss what happens to valuable possessions like your home or your car.
In terms of your home, it will depend on whether you rent or own your home.
If you rent, there may be a clause in your contract that gives your landlord permission to end the tenancy agreement once you enter sequestration. All tenancy agreements are different though, so have a skim through to see if it mentions anything about bankruptcy.
If you’re a homeowner, your property will be sold or not depending on its inherent value. Usually, if you home as any equity, the likelihood is that your home’s going to be sold. By equity, we mean the money you get back after selling your home and paying off your mortgage.
However, in some circumstances the costs of selling the home outweigh the benefits, so it’s not a certainty that your property will be sold.
If you own a car with the total value of over £3,000, it may be sold by the trustee to pay back your creditor(s). However, if you use your car to get to work, there may be some lee-way from trustee’s when they realise the car is helping you earn income. Your car may also be exempt from sale if you have a disability that restricts your movement or you care for a disabled family member.
An alternative option for the trustee is to arrange for your valuable car to be sold with the money from the car being used to pay for a cheaper vehicle, with the leftover money given to the creditor(s) to help pay off your debt.
Benefits of Bankruptcy
Although it may be difficult to see the positives in your situation, bankruptcy can lift a huge weight off your shoulders and reassure you that there is light at the end of the tunnel.
Your creditor(s) will contact your trustee instead of you for payment.
You can be debt free in one year.
Once discharged, you won’t have to repay debts you had when you were bankrupt.
If you initiate and apply for sequestration, it doesn’t involve any courts.
Unsecured debts are usually included in sequestration.
It’s quicker to get set up than a trust deed as the creditors do not get to vote on whether to accept it.
Costs of Bankruptcy
Assets like your home or your car may be sold to repay creditor(s).
Bankruptcy has implications on certain job positions such a Director, Solicitor, Accountant etc.
Your credit rating will be negatively affected and you may find it difficult to take out credit.
Agreeing to a three year income payment agreement means you may have to pay back your debt after your sequestration has finished.
Alternatives to Bankruptcy
Our specialist debt experts are on hand to help you understand everything there is to know about sequestration and all other debt management solutions. If you’re unsure whether sequestration is the right process for you, our insolvency advisors can guide you through our range of debt solutions such as Debt Arrangement Schemes and Trust Deeds.
If you are looking for guidance on sequestration, or any kind of debt advice help, please don’t hesitate to contact us.
At Scottish Debt Expert we offer help and guidance to anybody struggling with debt. Our Glasgow-based staff are always on-hand to chat through any concerns or questions you may have and guide you through the entire process of sequestration.
We’re available by telephone, email or face to face and will always arrange a call back within 24 hours. Email us at email@example.com or call us at 0141 483 7477 between 9am-5pm Monday to Friday.
Our professional indemnity insurer is Mapledown Royal & Sun Alliance plc, Mapledown Underwriting LLP, The St Botolph Building, 138 Houndsditch, London EC3A 7AG. Our policy number is RTT262119/11273. The territorial coverage is worldwide (excluding professional business carried out from an office in the United States of America or Canada) and excludes any action for a claim brought in any court in the United States of America or Canada.
Barry John Stewart and George Dylan Lafferty are authorised to act as insolvency practitioners in Glasgow and the UK by the Institute of Chartered Accountants of Scotland (ICAS).
1 According to the Annual Report from the Accountant in Bankruptcy. (https://www.aib.gov.uk/about-aib/statistics-data/aib-annual-reports-1986-present)
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