Bankruptcy

 October 2017

Fact sheet no. 01 SCOT Bankruptcy

This fact sheet tells you how to go bankrupt. Bankruptcy ends your liability for debts after a certain period of time, usually one year. If you are struggling to pay your debts, bankruptcy can help you to make a fresh start but it is important that you understand what bankruptcy means before choosing this option. 

Use this fact sheet to:

  • find out how to go bankrupt;
  • find out how a creditor can make you bankrupt;
  • understand how bankruptcy can affect you and the things you own;
  • understand the main advantages and disadvantages of bankruptcy; and
  • see what alternative options you may have for dealing with your debts.

This fact sheet includes some useful contacts and links for you to get further help.

What is bankruptcy?

Warning:

changes to bankruptcy law

On 1 April 2015, important changes were made to bankruptcy law in Scotland. The information in this fact sheet is based on the new law. If you were made bankrupt before 1 April 2015, some rules may be different. Contact us for advice.

Bankruptcy is an option to consider when you are unable to repay your debts over a realistic period. Bankruptcy may be an option where you simply cannot reach agreement with your creditors and your financial situation has become very difficult to manage.

You are likely to be under a lot of pressure, with a number of your creditors competing to collect their debt from you.

In Scotland, the word ‘bankruptcy’ is used loosely to describe two different situations.

Sequestration

Sequestration is the word used to describe the legal process by which you are formally declared insolvent (bankrupt). Insolvent means that you cannot pay your debts as they become due. In this fact sheet we will use the words ‘bankruptcy’ and ‘sequestration’.

Informal bankruptcy

See our fact sheet:

Trust deeds.

This is known as a ‘trust deed’. A trust deed involves making an offer to put your disposable income and your assets towards paying as much of your debts as possible. Creditors who accept this offer agree not to enforce payment of the remainder of the debt that they are owed. See Alternatives to bankruptcy later in this fact sheet for more information on trust deeds.

This fact sheet gives information about making yourself bankrupt and when a creditor can make you bankrupt.

Before you consider bankruptcy, you may want to look at whether any of the alternative options might be better for you. See Alternatives to bankruptcy later in this fact sheet.

Choosing bankruptcy

For some people in debt, bankruptcy can be something that they try very hard to avoid. For others, it is the most sensible solution to their debt problem. If you are worried about a creditor making you bankrupt, see Bankruptcy action by creditors later in this fact sheet.

Extra advice:

think carefully about bankruptcy

No single criterion should completely out-weigh the other. It may be a mistake to choose bankruptcy just because of the size of your debts. You should weigh up the advantages against the disadvantages. You must speak to a money adviser before you can go bankrupt. They must sign your bankruptcy application forms to say that they have given you advice about your situation. Only certain money advisers can do this. Contact us for advice about how to find a money adviser near to you.

Before you decide to go bankrupt, consider all the possible ways you could deal with your debt problem. This will include taking into account:

  • the total amount of your debts;
  • the likelihood of being able to repay your debts; and
  • your ability to deal with your debts.

Also, take into account:

  • your disposable income;
  • the likely length of a repayment programme; and
  • your age and health.

You should also consider your assets and the effects of losing them in bankruptcy. 

Assets could include:

  • your house;
  • your business; and
  • other valuable items.

Bankruptcy is often a straightforward procedure and the advantages are likely to be:

  • relief from the stress and anxiety of being in debt;
  • having your debts written off, or ‘discharged’, after as little as six months; and
  • being able to build a new life.

The main disadvantages of bankruptcy are:

  • the possible loss of certain assets, particularly your home;
  • that the trustee has wide powers over your financial affairs;
  • that certain types of job can be affected (see Effect on your job later in this fact sheet for more information);
  • that you cannot hold public office (for example, as an MP, MSP, councillor, or member of a school board) and you cannot serve as a company director unless the sheriff court agrees;
  • you cannot take out credit of more than £2,000 unless you tell the creditor about your status;
  • you cannot take out credit of any amount if at that time you have debts of at least £1,000; and
  • the bankruptcy will be listed on your credit reference file for six years. Even after this period it can still be difficult to get credit, such as a mortgage. This is because lenders may ask whether you have ever been bankrupt.

How to go bankrupt

From 1 April 2015, in order to petition for your own bankruptcy you must:

  • have debts of over £1,500 or £3,000, depending upon which route into bankruptcy you qualify for;
  • live in Scotland, or have lived in Scotland sometime during the last year; and
  • not have been sequestrated in the last five years.

Information:

deciding your application

The Accountant in Bankruptcy (AiB) is in charge of bankruptcy matters in Scotland. The AiB will decide whether to make you bankrupt when they look at your application. When you get money advice, your money adviser should help you to make sure that bankruptcy is a suitable option for you. This should give you the best chance of your application being successful.

In addition, you must also be able to show that you:

  • are eligible under the minimal asset process (MAP) rules (see the later section MAP bankruptcy); or
  • are apparently insolvent (see Apparent insolvency later in this fact sheet); or
  • have been given a formal ‘certificate for sequestration’ by an approved person, such as a money adviser, to say that you cannot pay your debts as they fall due (see Certificate for sequestration later in this fact sheet).

These three routes into bankruptcy are explained in more detail in the following sections. In this fact sheet, we use the term 'standard bankruptcy' to describe the 'apparent insolvency' and 'certificate for sequestration' routes into bankruptcy.

How much does it cost?

From 1 April 2015, you have to pay a fee of £90 to make yourself bankrupt under the MAP rules. If you go bankrupt under the standard process, the fee is £200. It is possible to pay the fee by instalments, but there are no exemptions to paying it. Contact us for advice about possible sources of financial help if you cannot afford the fee.

There are full details in the bankruptcy application pack about how to pay the non-refundable fee. Payment can usually be made by cash, cheque, debit card or postal order and you can pay by post, in person or at a bank.

MAP bankruptcy

‘Minimal Asset Process’ (MAP) is the name given to a special type of bankruptcy in Scotland. You need to have a low level of debt and very few assets to use this process.

In order to go bankrupt using the MAP process, you have to meet the following criteria.

  • Your total debts are at least £1,500 but no more than £17,000.
  • Your total assets are worth no more than £2,000. Basic household items and furniture you need for everyday living are not counted.
  • You don’t have any individual assets that are worth more than £1,000. (A car that you reasonably need will not be counted as long as it is not worth more than £3,000).
  • You don’t own any land or buildings.
  • You have a valid certificate for sequestration. This is a formal document confirming that you cannot pay your debts as they fall due. See the later section Certificate for sequestration.
  • Your budget sheet shows that you have no money available after your essential bills to pay to your creditors. If your income is made up of only benefits, and have received them for at least six months before your application, you automatically meet this condition.
  • You have not been made bankrupt under the minimal asset process rules in the last ten years.
  • You have not been made bankrupt under other rules in the past five years.

Information:

total debt level

If you do not meet the criteria for the MAP bankruptcy process, but still want to go bankrupt, you must owe at least £3,000 in total to all your creditors. This applies to both the 'certificate for sequestration' and 'apparent insolvency' routes.

There are advantages to going bankrupt using the MAP process. For example, you only have to pay a £90 application fee compared to the usual fee of £200. Also, your bankruptcy period usually comes to an end after 6 months

Standard bankruptcy

If you cannot use the MAP process, you may still be able to go bankrupt using the standard process.

You still need to meet certain criteria.

  • Your total debts must be at least £3,000.
  • You must not have been made bankrupt under other rules in the past five years.
  • You must either be apparently insolvent or have a certificate for sequestration.

Apparent insolvency

‘Apparent insolvency’ is a legal term meaning that you cannot pay your debts as they become due. You will only be apparently insolvent in certain circumstances. The most common circumstances are as follows.

Warning:

statutory demands

If you have been sent a statutory demand and you do not want to be made bankrupt, you will need immediate advice. See Bankruptcy action by creditors later in this fact sheet for more information.

  • You have received a ‘charge for payment’ and the 14-day time limit for payment has passed without you paying the debt. A charge for payment is a formal request in writing that you pay the amount owed. It will have the words ‘charge for payment’ printed across the top.
  • A creditor has served a notice on you called a ‘statutory demand’, requiring you to pay off a debt within 21 days of the date of the demand and you have not paid the debt.

Certificate for sequestration

A ‘certificate for sequestration’ is a formal document confirming that you cannot pay your debts as they fall due.

Extra advice:

finding an 'authorised person'

To find your nearest 'authorised person', talk to a local money advice centre, law centre, citizens advice bureau or contact us for advice.

A certificate for sequestration can only be issued by an ‘authorised person’, who could be:

  • an insolvency practitioner;
  • a money adviser working at a citizens advice bureau or local council; or
  • a money adviser working for any accredited advice agency.

Before granting you a certificate for sequestration, the authorised person must:

  • provide you with a copy of the Scottish Government’s Debt Advice and Information Package;
  • advise you about alternative options to bankruptcy; and
  • explain the effects of bankruptcy to you.

This certificate lasts for 30 days from the date it is signed by the authorised person. Therefore you must complete your bankruptcy application within this time.

Applying for bankruptcy

You will need to complete an online application form. Your money adviser will help you with this. If you are self-employed, contact Business Debtline for more advice about the bankruptcy process. See Useful contacts at the end of this fact sheet

  • If you go bankrupt under the MAP bankruptcy rules, you have to pay a fee of £90.
  • If you go bankrupt under the standard process, the fee is £200.

You can pay the fee by instalments. Contact us for advice or speak to your money adviser.

Extra advice:

legal help

You may qualify for free, low-cost legal advice under the ‘Advice and Assistance Scheme’ from a solicitor. Talk to a local money advice centre, law centre, citizens advice bureau or contact us for advice.

Warning:

complete the forms accurately

You must answer all questions in the application form accurately, including giving correct information about all your income, assets and debts. If in doubt, seek help.

 

How will I become bankrupt?

Remember:

help from a money adviser

If you want to go bankrupt, you must get advice from a money adviser. Contact us for advice about how to find a money adviser that can help you. Your money adviser will help you to fill in the forms.

The AiB will decide whether to make you bankrupt when they look at your application. If you have completed your application forms fully and accurately and supplied all the necessary supporting evidence, this should give you the best chance of your application being successful. 

The person who administers your bankruptcy is called the trustee. Under the MAP bankruptcy rules, the AiB will always be your trustee.

If you go bankrupt under other rules, the trustee will be either the AiB or a separate insolvency practitioner. If you have any assets, your trustee will be responsible for deciding whether to sell them to raise money to pay to your creditors.

Information:

discharge

Discharge means that you are no longer liable for your debts after the initial period of your bankruptcy ends. See How long are you bankrupt? later in this fact sheet.

Once your trustee is appointed, they take over your financial affairs and control them until you are discharged, or until all your assets are disposed of.  

Your trustee may arrange a meeting with you. At the meeting, they will:

  • check the details on your application form;
  • tell you what their role will be;
  • discuss what your obligations are; and
  • answer any questions you may have.

Extra advice:

court action by creditors

If you have decided that bankruptcy is your best option to deal with your debts, you can apply to the AiB to stop most types of court action by creditors for six weeks. This is called a 'moratorium on diligence'. It can help to give you some breathing space whilst you go through the bankruptcy application process. Contact us for advice.

Information: 

changes in circumstances

If you go bankrupt under the MAP rules but later have a change in circumstances, your case may be moved onto the standard bankruptcy rules. This means that the effects of your bankruptcy will be as if you went bankrupt under either the apparent insolvency or certificate for sequestration routes.

Bankruptcy action by creditors

Bankruptcy is usually a last resort and most creditors are unlikely to make you bankrupt. You must owe £3,000 or more before a creditor can make you bankrupt (although two or more creditors can ‘club’ together and apply to make you bankrupt). It costs creditors money in court fees and they are unlikely to get the debt paid back to them unless you have assets that can be sold to pay the debts. Assets are things that you own such as your home, car or savings you have in the bank. See Your assets later in this fact sheet.

In some situations, you might have to make payments for four years to pay off some of your debts. See Payments from wages later in this fact sheet.

A creditor wanting to make you bankrupt must have sent you a copy of the Scottish Government’s Debt Advice and Information Package. They must also prove that you have become apparently insolvent within the last four months. See the section What is apparent insolvency?.

To get to this stage, a creditor will be likely to have served:

  • a ‘charge for payment’; or
  • a ‘statutory demand’

on you and the time limit for you to reply will have run out. The time limit to reply is 14 days for a charge for payment and 21 days for a statutory demand.

Bankruptcy action by others

A trustee appointed under a trust deed can petition for your bankruptcy if you have failed to follow their instructions and not cooperated, or if they think it is in the best interests of the creditors. For more information on trust deeds, see Alternatives to bankruptcy later in this fact sheet.

Your assets

Extra advice:

vehicles

Your car may be at risk of sale unless you can show that you need it to travel to or from work, or to do your job.

Once you are bankrupt, your assets transfer to the trustee. The trustee may wish to sell any assets you have. Assets are the things that you own, such as: money, savings, your home or any property, vehicles, life policies, jewellery and shares. Also, if you are owed any money, this is also regarded as an asset.

Certain goods are not treated as assets in bankruptcy. These are items such as: clothing, bedding, furniture and household equipment for basic domestic needs. Items you need to earn a living (for example, tools and books) can be excluded up to a total value of £1,000. A vehicle that you need to travel to and from work, or to do your job, can also be excluded up to the value of £3,000

Information:

new assets

If you gain new assets within four years of the date of your bankruptcy, the trustee may claim and sell them to raise money to pay to your creditors. This applies even if you have been discharged. Discharge means that your bankruptcy period has ended and the debts included in your bankruptcy have been written off. See the later section How long are you bankrupt?.

  • If you have valuable and non-essential household items, they may be sold by the trustee to raise money to pay to your creditors.
  • If you have tools or books and these are valued at a total of more than £1,000, they may be sold by the trustee even if they are needed by you to carry out your employment. In these circumstances you would normally be allowed to buy cheaper replacements.
  • If you have a vehicle and it is valued at more than £3,000, it may be sold by the trustee even if it is needed by you to get to work, or to do your job. In these circumstances, you would normally be allowed to buy a cheaper replacement. 

Pensions

If you have a future entitlement to a pension, this will not usually be affected by bankruptcy. This applies to almost all approved personal and occupational pensions.

If you are concerned about your future pension, you might want to take independent advice, or speak to the Accountant in Bankruptcy’s helpline. See Useful contacts at the end of this fact sheet for the phone number.

If you are already receiving your pension when you become bankrupt, or if your pension becomes payable before you are discharged, it will not be transferred to the trustee. However, the trustee will be able to take your pension into account when deciding if you can afford to make a contribution to your creditors.

Payments from wages

Warning:

keep to the payments

If you have a debtor contribution order (DCO), it is important that you keep to the payments. If you miss two payments, your trustee could instruct your employer to make deductions from your wages.

This will only happen if you have spare money after paying your ordinary household expenses.

When you apply for bankruptcy, the Accountant in Bankruptcy (AiB) will look at your income and compare it with how much you and your family need to live on to maintain a reasonable standard of living. If the AiB thinks that there is a surplus, they will expect you to make a contribution towards the cost of your bankruptcy and towards paying your debts. This is called a ‘debtor contribution order’ (DCO). A DCO will usually last for four years. If you disagree with the AiB’s decision, you can ask for it to be reviewed within 14 days. If you still disagree with the AiB’s decision, you can ask the sheriff court to look at it. You must do this within 14 days of the AiB’s decision. Contact us for advice.

Information:

benefit income

If your main source of income is state benefits, your trustee may set your DCO at zero. This means you will not have to pay anything towards the cost of your bankruptcy and your debts. If you apply for bankruptcy through the minimal asset process (MAP), your trustee will set your DCO at zero.

If you have a change in circumstances, you may be able to ask your trustee to change the terms of your DCO or to stop it completely. You may also be able to get a temporary break from payments. Contact us for advice. 

Effect on your job

Your employment will not be affected by bankruptcy unless:

Information:

trading businesses

If you have a trading business you should contact us for advice.

  • you have a contract of employment which contains a clause about bankruptcy (for example, when you have a responsibility for handling money or are in a position of trust);
  • you hold a public office (for example, you are an MP, MSP, councillor or member of a school board);
  • you are a company director or a partner in a partnership; or
  • your trade or profession has a rule which prevents you from practising whilst bankrupt (for example, solicitors and accountants).

If you are concerned about whether your employment will be at risk if you go bankrupt, check your contract and contact us for advice.

Property and your home

Remember:

secured debts

If you have a loan secured on your home, you need to keep up with the repayments to prevent repossession.

Once you have gone bankrupt, any property which you own, including your home, transfers to the trustee. This gives them an interest in the property which may allow them to sell it.

If you own your own home, it may be sold, depending on whether it has any value or ‘equity’ in it.

If your spouse lives in the family home, he or she must agree to allow the sale. If one of your children lives in the family home, you must agree to allow the sale. If agreement is not given, the trustee has to apply to the sheriff court for an order allowing sale. The court can either:

  • grant the order (possibly with conditions);
  • refuse to grant the order; or
  • postpone granting an order for up to three years to allow you and your family to find somewhere else to live.

In the case of jointly-owned property, the trustee is only entitled to the bankrupt’s share of the equity in the property. It may be possible for any joint owner, or family and friends, to make an offer to buy out your share of the equity.

Information:

homelessness

If a trustee sells your home, local authorities will not automatically treat you as intentionally homeless. Contact us for advice.

If there is no equity, the trustee has no reason to sell the property. If you are discharged from your bankruptcy and the house remains unsold, it is still an asset and, if house prices rise, it may be sold in the future. Your trustee still has the duty to sell any assets that are transferred to them. If your trustee decides that they are not going to sell your home, they will formally abandon it and it will be transferred back to you. They must make a decision about your home within three years of you becoming bankrupt.

What if I rent my home?

If you are a tenant, the trustee will normally have no interest in the house as long as you can prove that it is rented. However, other problems can arise for tenants who are bankrupt and in some cases these can affect whether or not you will lose your home. In this section we explain these problems.

Can being bankrupt cancel my tenancy?

Some private sector tenancy agreements contain an ‘irritancy’ clause which allows the landlord to terminate your tenancy on the grounds of bankruptcy. If your tenancy has an irritancy clause, contact us for advice.

What if I have rent arrears?

If you have rent arrears, in some situations your landlord could start repossession action even after you go bankrupt. Speak to your landlord to check how they would treat your arrears if you go bankrupt and contact us for advice.

Do I have to pay my rent if I am bankrupt?

Once you are made bankrupt, you are still responsible for keeping up your rent payments. When the Accountant in Bankruptcy is assessing what income you have available to pay creditors, they will take into account your rent payments. If you do not pay your rent regularly, your landlord could start repossession action.

Other effects

Utilities

  • Your electricity and gas suppliers may insist that you have pre-payment meters installed.
  • If you had a fuel pre-payment meter before you were made bankrupt and this had been set to collect arrears, it should be adjusted to take account of current usage only after you are made bankrupt.
  • Your telephone company may allow the supply to remain in your name but may insist on a deposit. It may be necessary to stop and then re-start the telephone supply. It may be possible for another person, for example a spouse, relative or third party, to take responsibility for payment of the telephone bill.

All outstanding electricity, gas and telephone bills at the date of bankruptcy are treated as ordinary debts and included in your bankruptcy.

Council tax

You will still be liable for your present and future council tax, but any council tax arrears due at the date you became bankrupt are included in the bankruptcy. The council will not be able to enforce this debt once you are bankrupt.

If, before you were bankrupt, you lost the right to pay your council tax by instalments because you did not make the payments on time, you will have become liable to pay the whole year’s council tax. This debt will be included in the bankruptcy and you will not be liable for any payments towards council tax for the rest of the financial year, as long as you remain bankrupt.

Bank accounts

See our information sheet:

Basic bank accounts.

You may have to close your bank or building society account when you are made bankrupt. Your trustee may allow you to open another account, usually an ‘instant access’ type, where there is no cheque book, cheque card or overdraft facility.

What will happen to my credit rating?

Credit reference agencies hold information about bankruptcy for six years from the date your bankruptcy was granted.  This can significantly affect your ability to get further credit.

Details of your bankruptcy will also appear in the Register of Insolvencies, which is a public register. Your details will remain on this register until one year after your trustee has completed their duties.

How long are you bankrupt?

Information:

letters from creditors

Under the rules in the Consumer Credit Act 1974, your creditors will usually have to keep sending you annual statements, as well as arrears and default notices in a set format. This will happen even when you are bankrupt. Don’t worry, this does not mean that there is a problem with your bankruptcy. If you receive other letters from your creditors demanding payment, contact us for advice.

If you go bankrupt under the MAP rules, your bankruptcy will normally last for six months. However, you will still be under certain restrictions if you apply for further credit in the six months after this. These restrictions are listed below. When your bankruptcy period ends you will no longer be liable for the debts that have been included. This is called ‘discharge’. Some debts will not be written off at the end of your bankruptcy. See the later section Excluded debts for more information.

If you go bankrupt under other rules, you may be discharged at any time after one year from the date of your bankruptcy. The AiB will make this decision and will use the information that your trustee has given them about your bankruptcy.

Warning:

delayed discharge

If you do not cooperate with your trustee whilst you are bankrupt, your discharge may be delayed. This applies to all types of bankruptcy.

After discharge, if you gain new assets within four years of the date of your bankruptcy, the trustee will be able to claim them. Also, your trustee continues to have a duty to sell any assets that were transferred to them because of your bankruptcy.

Restrictions when your MAP bankruptcy ends

For six months after your discharge the following restrictions apply.

  • If you apply for credit of £2,000 or more, you must tell the creditor that you have been bankrupt and are under this restriction.
  • If you apply for credit of any amount when you already have debts of £1,000 or more, you must tell the creditor that you have been bankrupt and are under this restriction.
  • If you are self-employed, you must tell anyone that you do business with the name of your business when you went bankrupt.

Excluded debts

Remember:

payments from income

Even if you have been discharged from your debts, you may still have to make a contribution towards them through a debtor contribution order. See the earlier section Payments from wages.

Although your liability for most debts will be written off once you are discharged, there are exceptions to this. Even after discharge you will still be personally liable for:

  • fines, penalties, compensation and forfeiture orders imposed by any court;
  • any debt that has been incurred through fraud;
  • student loans;
  • any obligation to pay maintenance to an ex-spouse due under a court order (not child support agency or child maintenance arrears); and
  • money owed to a creditor whose debt is secured on your property (such as a mortgage or secured loan).

Information:

benefit overpayments

Benefit overpayments will be included in your bankruptcy as long as the end date of the overpayment was before the date of bankruptcy.

Remember:

ongoing payments

Although you may have included in your bankruptcy any council tax, child support or child maintenance arrears due at the date you were made bankrupt, you are still liable to pay:

  • ongoing child support and child maintenance payments; and
  • ongoing council tax payments.
 

Bankruptcy offences

Being bankrupt puts certain obligations and responsibilities on you. You will be expected to cooperate with the trustee at all times and keep them informed about any changes in your circumstances. This includes telling them that you have moved house, or that your financial circumstances have changed. If you fail to do this, you may be guilty of a criminal offence.

Also you must not:

  • take out credit for more than £2,000 without telling the lender or supplier that you are bankrupt;
  • take out credit of any amount at a time when you already have at least £1,000 of debt, without telling the lender that you are bankrupt;
  • start up a limited company, or be involved in the day-to-day management of a limited company, without permission of the sheriff court; or
  • act as an MP, MSP or as a member of a local council, a Justice of the Peace, or a member of a school board.

This is not a complete list of your responsibilities. Your trustee will give you a full list of what is expected of you.

If your trustee considers that you may be guilty of a bankruptcy offence, they may report you to the Procurator Fiscal. They can also impose restrictions on you. See the next section Bankruptcy restrictions.

Bankruptcy restrictions

Warning:

during your bankruptcy

Bankruptcy restrictions orders can arise due to your behaviour either before or during your bankruptcy.

You will usually be discharged from bankruptcy after six months or one year depending upon the type of bankruptcy. However, if your trustee considers that your behaviour has been dishonest or blameworthy in some way, they may report you to the Accountant in Bankruptcy (AiB). The AiB may make a bankruptcy restrictions order (BRO). A BRO means that you will have some restrictions on you after you are discharged. The order can last for between two and five years. If they consider that your misconduct has been serious, the AiB may apply to the sheriff court for a longer BRO. The sheriff court can make a BRO for between five and 15 years. If you have also committed a criminal offence (see Bankruptcy offences earlier in this fact sheet), your trustee may also report you to the Procurator Fiscal.

Examples of behaviour that could lead to a bankruptcy restrictions order being made include:

  • not cooperating with your trustee whilst you are bankrupt;
  • incurring debts when you knew that you had no reasonable chance of repaying them;
  • giving away assets or selling them at less than their value;
  • deliberately paying off some creditors in preference to others;
  • gambling or making rash speculations, or being unreasonably extravagant;
  • failing to keep proper records;
  • fraud;
  • causing your debts to increase by neglecting your business affairs;
  • failing to supply goods or services that you have been paid for; or
  • carrying on a business when you ought to have known that you could not pay your debts.

A bankruptcy restriction order means you are not allowed to:

  • start up a limited company or be involved in the day-to-day management of a limited company, without permission from the court;
  • act as an MP, MSP or as a member of a local council or a Justice of the Peace;
  • act as an insolvency practitioner;
  • apply for credit of more than £2,000 without telling the lender that you are subject to a bankruptcy restriction;
  • apply for credit of any amount if you already have debts of £1,000 or more without telling the lender that you are subject to a bankruptcy restriction; or
  • fail to inform anyone that you wish to do business with the name, or trading name, under which you became bankrupt.

Financial education courses

You may be told to attend a financial education course. It is up to the trustee to decide if you should attend one. You can be asked to attend if:

  • in the past five years you have been bankrupt, had a protected trust deed, had a DAS debt-payment programme, or have used similar options in another country;
  • the trustee is investigating and may make a bankruptcy restriction order, or you already have a bankruptcy restriction order;
  • based on your behaviour, whether before or after you were made bankrupt, the trustee thinks you would benefit from a course; or
  • you agree to go on a course.

The trustee must make a decision:

  • within six months of you being made bankrupt; or
  • as soon as they can if they couldn’t initially trace you.

The trustee should not ask you to attend if you have health problems which would stop you from going, or if you have already been on a course within the past five years.

Alternatives to bankruptcy

Trust deed

If you have debts which total at least £5,000, you may be able to apply for a trust deed. This is a legal agreement in which you transfer your property to a trustee for the benefit of your creditors. The trustee manages your property in line with the trust deed.

This is less formal than bankruptcy. It encourages creditors to accept less than 100 pence in the pound in payment and may allow you to keep your home.

The main disadvantage is that creditors who do not accept it are not bound by it. They can still take further action against you. A protected trust deed is usually more useful.

Protected trust deed

The trust deed will become protected if enough of your creditors agree to this. You will need agreement from at least half of your creditors, who are owed at least two thirds of your total debt. Creditors who have not objected in writing within five weeks of the date of the notice of your trust deed will be treated as if they have agreed.

Information:

finding an insolvency practitioner

National Debtline can send you an information sheet called ‘How to find an insolvency practitioner’. Contact us for a copy. Alternatively, a list of insolvency practitioners can be obtained from the Institute of Chartered Accountants of Scotland. See Useful contacts at the end of this fact sheet.

There will be fees that you will have to pay to the trustee for setting up and running the trust deed. These fees can be very expensive and will be paid out of your contributions. You will normally be expected to contribute a regular monthly or weekly payment. This will be for at least four years. Your creditors cannot normally take any further action against you.

If you feel that a trust deed is appropriate for you, contact us for advice. National Debtline may be able to refer you to an insolvency practitioner.

See our fact sheet:

Trust deeds.

Informal arrangement in short settlement

These are also called ‘Extra-judicial composition contracts’. They are informal arrangements in which your creditors agree to accept less than the full amount of the debt in return for your agreeing to give them a part of your income over a fixed period. 

They are relatively rare. The general features of these arrangements are that:

  • they are voluntary contracts containing a settlement of x pence in the pound, that is, you do not pay your debts in full; and
  • they require full disclosure of your assets and liabilities, but unlike bankruptcy or trust deeds your assets will not transfer to a trustee, so you will be allowed to keep your possessions.

If you breach the terms of the agreement, fail to disclose assets, or misrepresent something, your creditors will be able to start action against you again.

To set up an informal arrangement in short settlement you will need the help of a money adviser, solicitor or an accountant. Solicitors and accountants will charge a fee for this service.

Debt arrangement scheme (DAS)

If you have worked out your budget and you have some money left over, you might be able to join a DAS debt-payment programme. There are a number of advantages to joining a DAS debt-payment programme.

  • You will make one regular payment to cover all your debts. This is made to an approved payment distributor, who will send the money to your creditors for you.
  • If you keep to the agreed payments, your creditors will not be able to use diligence (court enforcement) against you.
  • DAS freezes interest, fees and charges on your debts from the date you make your application for as long as you maintain the payments.

In order to apply for this you will need to contact an approved money adviser. To search for an approved money adviser in your area, see www.dasscotland.gov.uk.

See our fact sheet:

Debt Arrangement Scheme (DAS).            

If you are successful in applying for a debt-payment programme, a payments distributor will be appointed to deal with your case. This will allow you to make one single payment which will then be distributed amongst your creditors. If you keep to the agreed payments, your creditors will not be able to use bankruptcy or diligence against you.

Useful contacts

Accountant in Bankruptcy
1 Pennyburn Road
Kilwinning
Ayrshire
KA13 6SA
Phone: 0300 200 2600
www.aib.gov.uk

Debt Arrangement Scheme
1 Pennyburn Road
Kilwinning
Ayrshire
KA13 6SA
Phone: 0300 200 2770
www.dasscotland.gov.uk  

Institute of Chartered Accountants of Scotland
CA House
21 Haymarket Yards
Edinburgh
EH12 5BH
Phone: 0131 347 0100
icas.org.uk

Business Debtline
Phone: 0800 197 6026
www.bdl.org.uk