Bankruptcy in Scotland (called Sequestration) – what is it?
Bankruptcy is a legal process where individuals obtain debt relief from some or all of their debts.
Why enter sequestration?
The law recognises that you may not be able to pay your creditors in full, either now or in the future. You can therefore declare yourself bankrupt to prevent your creditors taking any further action against you. In turn, you must surrender certain assets to the Trustee who must be appointed to deal with your financial affairs.
If you can pay a contribution from your earnings, you will be expected to do so. Your contribution will usually last for four years.
You can choose to enter sequestration voluntarily, and pick your Trustee, or you can be forced into it by a creditor owed more than £10,000, and they will choose your Trustee.
Appoint an Insolvency Practitioner
An insolvency practitioner (IP) must be appointed as Trustee to deal with your estate – your assets and your liabilities – and the IP acts like a referee. Dunedin Advisory’s IPs are qualified to act as your Trustee and our aim is to make sure that everyone is treated fairly in the process.
Windfall assets
If you acquire any windfall assets in that four-year period, such as a lottery win or an inheritance, you must declare these to your Trustee.
Assets sold before bankruptcy
Your Trustee will have legal powers to look back at transactions that you have entered in the years before the bankruptcy, to make sure that you have not given assets away or to see if you paid one debt in preference to another. We might be able to get the asset or payment back.
Impact on employment
Before deciding which procedure is right for you, check your contract of employment.
The benefits
The benefit of the process is that you will be discharged from your debts. That means that the creditors cannot ask you for money towards the debts that were included in your bankruptcy and you are no longer subject to any restrictions.
Debts you still need to pay
You won’t be discharged from any of the following debts however, and you will need to continue to pay these while bankrupt, or arrange to start paying them again at the end of your bankruptcy:
- Court fines
- Liability incurred by fraud (including benefit fraud)
- Student loans
- Mortgage
Making monthly payments
If you can pay a contribution from your earnings, you will be expected to do so for a maximum period of four years. The monthly amount you pay is called a DCO (debtor contribution order). We will agree a Debtor Contribution Order with you before you apply for sequestration. This will be reviewed throughout your four year sequestration period.
What happens with my assets?
If you have assets that can be sold by your Trustee, these will be realised. We will discuss with you how we will do that. It is not always a requirement for all of your assets to be sold. For example, you may be able to pay the asset value over time avoiding it being sold. Dunedin Advisory will provide you with a full understanding of what will be required before you enter into sequestration.
Additional borrowing
Sequestration comes with restrictions: for example, you cannot borrow £2,000 or more from one creditor, without telling the supplier of credit that you are sequestrated. If you apply for credit and owe more than £1,000 in total (including council tax and utilities) then you must also declare your sequestration.
Other restrictions you may be faced with
You cannot be a company director or hold public office while sequestrated, and if you hold certain public operators’ licences, these may cease on sequestration.
Minimal Asset Process (MAP) Sequestration
You may qualify for MAP if you:
- receive state benefits or state pension only
- have no assets or assets worth less than £2,000
- Do not own heritable property
- Have total debt of more than £1,500 and less than £25,000
- have not been bankrupt in last five years and haven’t done a MAP in the last ten years
It’s a form of sequestration, administered by the AiB, and it is much shorter than a full-process sequestration. You are not expected to pay a contribution, or lose your assets, since realistically you will have neither. You would usually expect the bankruptcy to be finished after six months.
Speak to us about whether you qualify.
There is no substitute for detailed advice, tailored to your circumstances. Contact us and we will arrange to meet you, free of charge, for a discussion on what your options may be. Please call us on 01592 630085 or email [email protected]