Bankruptcy

You might potentially be able to write off all your debt and within a short time frame.

Bankruptcy, which is called sequestration in Scotland, is a big step to take – and one for which you need expert advice from a leading money adviser such as TC Debt Solutions. We will approach it with you as a serious discussion about your future as there are many important, and sometimes hidden, implications to entering into bankruptcy.

Going bankrupt can have a real impact on your future financial situation, so it is important that it is used as an option of last resort and when all other options have been explored. That being said, bankruptcy or sequestration can eventually be a positive way forward for someone in the right set of circumstances.

What debt does bankruptcy cover?

The first thing to note is that you have to fulfil two key criteria to be able to enter into sequestration:

You have to be resident in Scotland
You have to have unsecured debts of more than £3,000 that you are unable to pay back

What You Should Know

What does filing for bankruptcy mean?

Filing for bankruptcy is entering into formal insolvency and involves transferring your assets into the care of a Trustee, appointed to pay off your creditors as far as this is possible.

You should really only be filing for bankruptcy if all other avenues are closed off, and you are genuinely unable to meet your unsecured debts in any other way. If you do go bankrupt then you will remain in that state for a minimum of 1 year.

Your name and details will also be added to the Register of Insolvencies, and will remain on this public register for a period of 5 years.

You have several options

What are the three types of bankruptcies?

The three types of bankruptcies are:

Involuntary bankruptcy, in which a creditor can apply to have you declared bankrupt if you owe more than £5,000
Voluntary bankruptcy, which you can apply for if you do not qualify for MAP, and your debts are more than your assets and you owe more than £3,000
Minimal Asset Process (MAP) bankruptcy, which is available only if you live in Scotland and have few assets and no disposable income, and up to a limit of £25,000 in unsecured debts. For this option, you have to have assets that are worth no more than £2,000 (and no individual asset can be worth more than £1,000). Other restrictions may apply.

It can be the right thing to do

Is filing for bankruptcy bad?

Filing for bankruptcy is not necessarily bad. Indeed, it used to be the case, until the legislation changed in 2008, that someone in Scotland could not enter bankruptcy voluntarily; they had to wait until they were forced by creditors to do so.

This meant that creditors often simply drew the whole process out – with people seeing their debts growing as interest, fees and charges kept piling up. Now, by contrast, you don’t have to go through that uncomfortable process: you can take control of it yourself!

It gives you a way out of what can be seemingly overwhelming debt. Critically, you do not need creditor approval to do this. Filing for bankruptcy is not in itself a bad thing: in the right circumstances, it can be the right thing to do.

I used to go onto forums searching for people in a similar position to myself, reading stories of people waiting months and even years to sort their discharges. You had it done and dusted within a week of my final payment - it was just brilliant.

HELPING AND SUPPORTING YOUR THROUGHOUT

What happens if I declare bankruptcy?

You can declare bankruptcy voluntarily. To do this, you need to submit a debtor application; this will put a line in the sand in terms of how you manage your debts.

It’s a big step, but it will allow you to move forward even if you are confronted by some tough realities as a result of taking this course of action.

Before any of the above happens, and as your debt advisers, we will advise you of whether you qualify for bankruptcy. We will work with you to establish whether you really are insolvent in terms of the legislation. We will also look at the possibility of a Trust Deed or a Debt Arrangement Scheme at this stage instead of going down the bankruptcy route.

When we are sure, and we are both agreed, that bankruptcy is the best way to deal with your debt, we will jointly complete your debtor application pack.

Next Steps

The next stages in the process consist of issuing you with a Certificate of Sequestration and then submitting your application to the Accountant in Bankruptcy (AIB). Your application will then be processed within around 5 working days. The AIB will also arrange for a Trustee to be appointed in your case.

The Trustee will deal with all your creditors: you do not have to deal with any of them. In fact, your Trustee will deal with your creditors in all circumstances, taking control of your assets and deciding the most effective way of using them to pay back any unsecured debts in as far as you are able.

If you are not able to pay your creditors back in full over time, then your Trustee will again communicate with them directly. TC Debt Solutions can act as your Trustee.

Moratorium

Creating breathing space

In times of distress, a moratorium provides some breathing space to stop creditors taking further action against you for debt you are owe them, giving you time to think, take advice and decide on the best course of action.

If you are having difficulty repaying one of more of your creditors and require more time to consider your options, you can apply for a moratorium on creditor diligence.

It is used alongside the statutory Scottish debt solutions and may be available if you are considering applying for Sequestration, a Trust deed or for the Debt Arrangement Scheme.

A moratorium effectively stops creditor action against you for six months, offering valuable time to seek advice and think about your options. You are allowed to apply for one six-month moratorium in any twelve-month period.

We are here to help

Common questions on bankruptcy

Can my creditors make me bankrupt?

If you owe more than £5,000 to a creditor or creditors, then they can force you into bankruptcy. If that happens, we are by your side to ensure that this is managed in the most orderly way and to your best advantage in the circumstances.

How much does it cost to declare bankruptcy?

It will cost you £150 for a full application. There is no fee if applying via the Minimal Asset Process route.

This fee is paid to the AIB (Accountant in Bankruptcy), the governing organisation that oversees all personal bankruptcies in Scotland.

Does bankruptcy clear tax debt?

When you are discharged from bankruptcy, your debts are written off.

How does filing for bankruptcy affect your spouse?

This is a common question that we are asked – and a very understandable one too. No-one wants to think of their spouse being negatively affected by debts that they have not incurred. Your partner is not responsible for your personal debts – even if you are married.

However, that does not mean that you partner will be completely unaffected by your bankruptcy or sequestration. You will need to contribute information about their income so that your Trustee can see that they are contributing their fair share towards household expenses. All of this is relevant because it has a direct bearing on how much you can afford to put towards paying back your debts.

In the case of any joint debts, your partner remains jointly liable for the full amount.

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