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Bankruptcy or Sequestration is a legal order which confirms to your creditors you are unable to repay the money you have borrowed.
It involves you agreeing to pay what you can afford for 48 months and your Trustee gathering in your assets which are not excluded. These assets are turned into cash to cover the costs of bankruptcy and your debts.
What is the criteria for a Sequestration?
Bankruptcy prevents creditors being able to pursue you or take legal action against you to recover what they are owed. You will not have to make any further payments directly to creditors, although you have to pay what you can afford in to your Bankruptcy for 48 months, if this is a Full Administration Bankruptcy. You are only bankrupt normally for 1 year although this period can be longer if you do not cooperate with your Trustee.
To qualify for Sequestration you have to meet conditions set out for the Minimal Asset Process “MAP” or Full Administration. You need to apply for a Certificate of Sequestration which demonstrates you are unable to pay your debts as they become due. There is no charge to obtain this certificate.
Most money advisers, insolvency practitioners and some people who work for insolvency practitioners are authorised to issue this certificate. You can then apply for your own bankruptcy but this must be within 30 days of the certificate being issued.
Minimal Asset Process “MAP”
This is a process available for people with little assets. To be eligible you must meet the following conditions:-
- Owe at least £1,500
- Owe no more than £25,000
- You do not own a single asset worth more than £1,000
- You live in Scotland or have lived in Scotland for the last year
- Not been bankrupt through the Minimal Asset Process in the last 10 years
- Be only receiving benefits or you have no surplus income which has been assessed by a money adviser
The fee is £50 but if you apply through this process and you do not meet the conditions there will be a further charge of £100. Your Trustee will be The Accountant in Bankruptcy, unless you have nominated an Insolvency Practitioner who agrees to act as your Trustee.
You get your discharge after 6 months if you have fully co-operated with your Trustee but your Trustee will continue in office for a further 6 months. The restrictions while you are bankrupt are not being able to borrow more than £2,000 either solely or jointly without disclosing your status and you cannot engage in business unless certain criteria is met.
Full Administration Process
If you do not meet the Minimal Asset Process, and you want to make yourself bankrupt, you must meet the following criteria:-
- Owe total debt of £3,000 or more,
- Live in Scotland or have lived in Scotland for the past year
- Not have been made bankrupt in the past 5 years
- Your DAS has failed and a creditor has taken legal action against you
- Pay an application fee of £200
There is further criteria needed which either involves having confirmation from a money advisor that you are insolvent or you have a certificate of sequestration or one of your creditors is willing to make you bankrupt. If you have a failed Trust Deed only your Trustee or creditors can make you bankrupt.
Your Trustee will be The Accountant in Bankruptcy unless you have nominated an Insolvency Practitioner who agrees to act as your Trustee.
What happens to my assets and surplus income?
Bankruptcy is a complex process and your Trustee will want to interview you to get evidence of your assets (what you own), your debts and your income and expenditure.
If you have surplus income after deducting your reasonable monthly costs of living, your Trustee will manage your Debtor Contribution Order “DCO” which will last for 48 months. Any pension income will be taken into account when assessing if you can make a DCO.
You will be asked to complete a form every 6 months to confirm your circumstances. You must co-operate with your Trustee. Failure could result in your bankruptcy lasting longer or restrictions being placed on you.
You Trustee will gather in your assets (the things you own) including land and buildings and sell them to pay the costs of bankruptcy and your debts.
There are assets exempt from bankruptcy including:-
- Items needed for day-to-day living including clothes, furniture, household linens, etc
- Tools of trade up to a value of £1,000
- You may also be able to keep a car that is needed by you to earn a living up to a value of £3,000
If you own a home or any other property, control transfers to your Trustee. Your Trustee can sell your home or allow a member of your family to buy your interest in the property. The value of your interest is after deducting amounts outstanding to creditors whose debt is secured on the property.
For more information about the bankruptcy process and it’s effects, there is a Debtor’s guide (need a link to this which is on aib.gov.uk /sites/default/files/debtors_guide_0.pdf
All debt solutions should be very carefully considered. If you are based in Scotland, struggling with debt issues and need advice on your options, we are happy to refer you to appropriately regulated debt solutions practices who can offer advice on all solutions.
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