Bankruptcy in Scotland is also called sequestration (we use both terms on this page).
It’s a formal legal insolvency process that you can use if you cannot repay your debts.
A trustee gets appointed to oversee your bankruptcy. Their job is to identify and realise your surplus income or assets (if there are any) to help repay your creditors.
Many people find the idea of becoming bankrupt very uncomfortable, but it’s often the fastest and cheapest way to resolve a serious debt problem.
For advice about suitable debt solutions please contact us.
How to Apply for Bankruptcy
The “full administration process” is the standard way to apply for bankruptcy in Scotland. The application fee is usually £200. This fee has been reduced to £150 temporarily under Covid-19 rules and if you receive certain types of benefits it’s currently free.
The “minimum assets process” is available if your income is low, your debt level is modest, and you don’t own any significant assets. The application fee is usually £90 but this has been reduced to £50 temporarily under Covid-19 rules. If you receive certain types of benefits an application is currently free.
Full Administration Criteria
To qualify to apply for full administration bankruptcy:
1. Owe £3,000 or more
2. Resident in Scotland *
3. Not bankrupt in past five years
4. Able to pay the fee
5. Got advice from a money adviser
Minimal Assets Process Criteria
To qualify for minimal assets process sequestration:
1. Owe £1,500 to £17,000 **
2. Resident in Scotland *
3. Not bankrupt in past five years
4. Able to pay the fee
5. On benefits for past six months or/
6. Have no surplus income
7. Don’t own property or land
8. No single asset worth more than £1,000
9. Total assets worth less than £2,000
10. Vehicle worth less than £3,000
11. Got advice from a money adviser
* If you moved abroad with the past year sequestration might still be possible.
** The upper debt threshold is temporarily increased to £25,000 under Covid-19 rules.
Appoint a Bankruptcy Trustee
If you can afford a monthly payment you may be able to appoint your own bankruptcy trustee. This role is undertaken by an insolvency practitioner.
You may also be able to appoint your own trustee if you own a significant asset that you are prepared to sell.
The benefit of appointing a trustee is that some important details about the process can be agreed in advance. For example, you can agree upfront your monthly payment amount and how your assets will be treated.
If you make a direct sequestration application, you’ll get assigned your trustee afterwards. You will not know how much you’ll pay (if anything) or how your assets will be treated until after you have become committed.
Approved Money Adviser Advice
It’s mandatory to get advice from an Approved Money Adviser before submitting your sequestration application.
You can get approved money advice from an insolvency practitioner, or from money advisers at Citizens Advice or your Local Authority debt advice service.
If the adviser is satisfied that you qualify for bankruptcy, the money adviser will provide you with a Certificate for Sequestration.
Certificate for Sequestration
This certificate is the evidence you need to demonstrate that you are technically insolvent.
A Certificate for Sequestration must be supplied when you submit your bankruptcy application. It’s only valid for thirty days after it has been issued.
A moratorium provides you with legal protection from your creditors for a limited period of time.
Moratoriums provide breathing space to get debt advice, consider debt solution choices, gather any information that’s needed to apply for a debt solution.
An approved money adviser can submit your application for a moratorium. It usually provides six weeks of protection but this has been temporarily extended to six months under Covid-19 rules.
Bankruptcy Consequences (Good and Bad)
Your credit rating will be seriously affected. A bankruptcy is recorded on your credit report for six years.
All bankruptcies are recorded on the Register of Insolvencies. Personal information, such as your name and address, is publicly accessible via this online register.
You must cooperate with the bankruptcy trustee or risk a discharge delay.
Bankruptcy restrictions can be extended if your trustee has concerns about your conduct.
Discharge usually occurs after one year (six months for MAP applications).
Your debt gets written-off when you get discharged.
Assets that you own vest in your trustee and could get sold to help repay your debts.
You’ll be allowed to keep a vehicle worth less than £3,000 if you have a reasonable need to use it.
If your trustee assesses that you have surplus income, you’ll be required to make a regular payment that will last for four years. These debtor contribution orders effectively restrict your discretionary spending.
You must notify your trustee if your earnings increase (you may need to pay more into your bankruptcy).
For four years you must notify your trustee if you receive a windfall of money or property. Your trustee is likely to require that the value of any windfall is paid into your bankruptcy.
You cannot apply for credit until you are discharged.
Despite becoming bankrupt you will need to continue paying for the services and goods that you rely upon.
This category of priority bills includes your rent or mortgage, current utility bills, and secured finance on goods (such as vehicle hire purchase).
Most types of employment aren’t affected by becoming bankrupt in Scotland. It’s recommended that you check your contract of employment (or speak with your regulator if you have one) before making your application.
There may be issues or additional obligations if you’re subject to security vetting. This could apply if you work in the armed forces, police, or prison service.
There may be contractual or regulatory issues if you work for a bank or in the wider financial services sector. This could apply in respect to ongoing financial vetting and to recruitment processes.
Some professionals will find that their regulator takes an interest in their financial standing and any personal insolvency processes used. Amongst others this applies to solicitors and accountants.
There is no joint bankruptcy process in Scotland.
Couples intending to become bankrupt must submit individual applications.
If you appoint your own trustee (see above) both the applications and the subsequent bankruptcy case-management can be coordinated.
Bankruptcy Restriction Orders
A Bankruptcy Restriction Order (BRO) is used where a trustee considers that a bankrupt’s conduct has been dishonest or blameworthy.
Examples include giving away assets to avoid them being sold by the trustee, borrowing with no intention to repay the money, or prioritising repayment to relatives or friends at the expense of other creditors. Significant gambling losses can also result in a BRO.
A BRO extends bankruptcy restrictions by two to five years. In serious cases of misconduct, the court can extend an order by up to fifteen years.
Being Made Bankrupt by a Creditor
Usually a creditor that you owe £3,000 (or more) could try to make you bankrupt for an unpaid debt.
At the time of writing the figure has been temporarily increased to £10,000 as part of the Covid-19 response.
Alternative Debt Solutions
Sequestration in Scotland works well for many people, but for various reasons may be unsuitable for others. One key advantage of bankruptcy is that it does not rely upon creditor support.
It’s common for people to qualify for a number of different debt management solutions and need to choose between them.
A protected trust deed is a popular alternative to bankruptcy. Its main advantage is that assets you own (like you house or car) may be treated more flexibly. You make an affordable payment for the agreed term (a minimum of four years) with any unpaid debt getting written off at the end.
The debt arrangement scheme is a repayment solution rather than a type of personal insolvency. You make an affordable payment for as long as it takes to clear the debts in full. During the arrangement you receive legal protection from your creditors and interest stops.
A debt management plan is an informal and flexible alternative to the debt arrangement scheme. You make an affordable payment which continues until your debts have been cleared in full. Debt management provides no guarantees about interest stopping or creditor recovery action.
Debt consolidation borrowing may be appropriate, but this is also considered to be risky. The basic premise is that you take out one new large loan to clear your other debts. This is unlikely to affect your credit rating but risky if you cannot afford the repayments in the future (especially if the loan is secured upon your home).
Get Debt Advice
For personal debt advice about Scottish debt solutions please contact us.
Our friendly expert advisers will guide you to debt solutions that bring your finances back under control.
We’re based in the Vale of Glamorgan near Cardiff and provide high-quality regulated debt advice to people who live throughout the UK. We can assist in arranging bankruptcy trustee appointment via our partners Wylie & Bisset in Glasgow.