Formal bankruptcy or a ‘sequestration’

Sequestration is the word used to describe the legal process when you are formally declared insolvent (bankrupt). Bankruptcy is a way of having all your debts written off. There are two different routes to bankruptcy, the 'MAP (minimal asset process) bankruptcy' and the Full Administration Bankruptcy (FAB), also known as 'standard bankruptcy'.

MAP Bankruptcy

To qualify for the minimal asset process, you must meet the following criteria:

• You must owe a total debt of at least £1,500,
• You must not owe more than £25,000,
• You do not own a single asset worth over £1,000 (this excludes a vehicle which does not exceed £3,000 and is reasonably required by you),
• The total value of your assets do not exceed £2,000,
• You must have taken money advice from a qualified money adviser or insolvency practitioner,
• You must be living in Scotland or have lived in Scotland sometime during the last year,
• You must not have been made bankrupt in the previous five years,
• You must not have been made bankrupt through the Minimal Asset Process within the last 10 years,
• You must pay the application fee of £50,
• You must have a certificate of sequestration signed by an authorised person,
• An approved money adviser will assess your income and expenditure using the Common Financial Tool to determine that you have no surplus income to pay a debtor's contribution or you have been in receipt of benefits for the last 6 months, or
• You do not own any land or property.

If you don't meet the criteria for MAP bankruptcy, you can apply for Full Administration Bankruptcy. You must have debts over £10,000 and have not been made bankrupt in the last 5 years. You must be "apparently insolvent" or have a certificate of sequestration.

When dealing with bankruptcy, the technical language used can be confusing. Here are some common terms used and descriptions of what they mean.

Full Administration Bankruptcy (Standard Bankruptcy)

If you don't meet the criteria for MAP bankruptcy, you can apply for Full Administration Bankruptcy (FAB), sometimes called standard bankruptcy. To do so, you must meet the following criteria:

• You owe at least £10,000 in debt.
• You are 'apparently insolvent' or have a 'certificate of sequestration.'
• You live in Scotland.
• You have already been given advice from an Approved Money Adviser or Licenced Insolvency Practitioner.
• You have signed a Trust Deed that has failed due to your creditors objecting.
• You have not previously been sequestrated within the last 5 years.
• You must pay the £150 application fee (if you receive certain benefits, you may be able to waive this fee).

Apparent Insolvency

This is a legal term meaning that you cannot pay your debts as they become due.

The most common types of evidence for apparent insolvency are:

• A Charge for Payment - this is a legal document and will state "Charge for Payment" at the top. This means you owe money to your creditor, and they are demanding payment within 14 days, or they will take further action. If you do not pay within this period, the Charge for Payment will expire, and it can be used as evidence of apparent insolvency.
• Statutory Demand - This is a legal document and will state "Statutory Demand" at the top. It is a formal request from your creditor to pay a certain amount of money which must be over £1500, and is served by Sheriff Officers. A Statutory Demand expires after 21 days. If you don't pay within this period, it may be used to prove apparent insolvency.
• The debt Payment Plan under the Debt Arrangement Scheme has been revoked.
• A Trust Deed has been granted but has not become "Protected".

Certificate of Sequestration

A 'certificate for sequestration' is a formal document confirming that you cannot pay your debts and can only be issued by an 'authorised person' such as a money adviser or insolvency practitioner. This certificate lasts for 30 days from the date it is signed, and you must complete your bankruptcy application within this time.

Discharge of Bankruptcy

When your bankruptcy period ends, you won't be liable for the debts that have been included. This is called "Discharge". Depending on your chosen route, this will determine how long your bankruptcy period lasts. Under the MAP rules, you are bankrupt for 6 months, after which you are automatically discharged. There is a restriction banking you from taking out any further credit for 6 months after your discharge.

From April 2015, for Full Administration bankruptcy applications, there will no longer be an automatic discharge. Your Trustee will apply to the Accountant in Bankruptcy for your discharge. This is usually after 12 months. If you have co-operated fully with your Trustee during your bankruptcy period, you should be discharged.

How to apply for bankruptcy

You must apply online with the help of a money adviser.

Bankruptcy fees

From 22nd March 2021, you have to pay a fee of £50 to make yourself bankrupt under the MAP rules. The cost is £150 if you take the FAB (standard) route, but you may not have to pay this fee if you claim certain benefits.

Important points to remember about bankruptcy

• Speak to a debt adviser before deciding to apply for bankruptcy.
• Going bankrupt writes off your debts, giving you a fresh start. Your creditors will not be able to ask you for payment or take further action against you. This can reduce a lot of stress.
• You have to pay a fee before you can go bankrupt.
• You may lose your home and other assets if they are worth a lot of money.
• Bankruptcy will be on your credit reference file for six years. This means it will be harder for you to get credit in the future.