Formal bankruptcy or a ‘sequestration’
Sequestration is the word used to describe the legal process by which 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 ‘standard 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 £17,000,
- 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 last five years,
- You must not have been made bankruptcy through the Minimal Asset Process within the last 10 years,
- You must pay the application fee of £90,
- 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 £3000 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.
If you don’t meet the criteria for MAP bankruptcy you can apply for standard bankruptcy. In order to do so you must owe at least £3,000, not have been made bankrupt in the last five years. You must be ‘apparently insolvent’ or have a ‘certificate of sequestration.’
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 and if you don't pay within this time period, it may be used to prove apparent insolvency.
- 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 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.
From the 30th September 2017 it will no longer be possible to apply with a paper form.
From 1 April 2015, you have to pay a fee of £90 to make yourself bankrupt under the MAP rules. The fee is £200 if you take the standard route.
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 6 years. This means it will be harder for you to get credit in the future.
- Priority and non-priority debts
- Bank accounts and debt
- Drawing up a budget sheet
- Negotiating reduced payments to your debts
- Free Debt Management Plans
- Debt Arrangement Scheme
- Trust Deeds
- Formal bankruptcy or a ‘sequestration’
- Write Offs
- Will I be 'blacklisted'?
- What can creditors do if I don't pay?
- Should I tell creditors about my mental health?
- Getting help from a specialist adviser
- Next steps