Bankruptcy

The Scottish legal term for bankruptcy is Sequestration. It is a process whereby a person is formally declared to be bankrupt following on from an application to the Accountant in Bankruptcy. The procedure is governed mainly by the Bankruptcy (Scotland) Act 1985 (the 1985 Act) and the Bankruptcy and Debt Advice (Scotland) Act 2014. The legislation covering all areas of personal insolvency can be found in the “Guidance” section of the AIB’s Website.  www.aib.gov.uk

The person is no longer known as a bankrupt but is referred to simply as the debtor.

The process of sequestration means to transfer the assets and property belonging to the debtor into the hands of a Trustee, who will then dispose of them for the benefit of the creditors. Bankruptcy can have serious consequences for a debtor and should never be entered into lightly.

Bankruptcy (who can apply)

A Creditor - A creditor or a group of creditors who are owed at least £3,000 may apply to the sheriff court for a debtor’s sequestration. Debtor MUST have been issued with a Debt Advice and Information Package (DAIP) the court will then issue a Warrant to Cite giving the date of the hearing. If debtor wishes to be sequestrated they need not attend court but if they do not wish to be sequestrated they must attend or be represented at court to give their reasons.

A Trustee - A Trustee acting under a trust deed can apply for a debtor's sequestration under Section 5(2) (b) (iv) of the 1985 Act if: The debtor has failed to comply with an obligation under the trust deed, or a reasonable requirement or instruction of the trustee and the trustee avers that bankruptcy is in the best interests of creditors. 

A Debtor - A Debtor who meets the various criteria may petition for their own bankruptcy. The routes available to the debtor have increased in order to prevent those for whom bankruptcy is the most suitable option from being excluded.

The conditions for a debtor applying for bankruptcy are:

• they must owe a total debt of at least £1,500, but no more than £17,000 for MAP. If your debts are over £17,000, or own assets valuing £2,000 or more then you can only apply for bankruptcy under the full administration route 
• they must have received money advice from a money adviser  
• they must be living in Scotland, have lived in Scotland or have established a place of business in Scotland, in the year immediately preceding the date of your application  
• they must not have been made bankrupt in the last 5 years   
• they must pay the application fee. (Depending on which route into bankruptcy they apply for, there are two different costs:

It costs £90 to submit an application through the Minimal Asset Process (MAP) or £200 for full administration which is through the Apparent Insolvency (AI) or Certificate for Sequestration (CFS) routes.

NOTE-A debtor cannot apply for bankruptcy through MAP if they have been made bankrupt through MAP in the previous 10 years.

They must also meet one of the following conditions:

• they must meet the conditions for MAP; or 
• they must be Apparently Insolvent; or 
• they must have a Certificate of Sequestration.

Specific routes:

Apparent insolvency route (AI) - most likely the creditor would have served a charge for payment or a statutory demand; this would allow the debtor to petition for their own bankruptcy.

Minimal Asset Process (MAP) - To meet the criteria for this route a debtor must not have a single asset worth more than £1,000. This excludes a vehicle worth up to £3,000 that they reasonably require, for example, to get to work. The total value of their total assets cannot be more than £2,000 (excluding a vehicle mentioned above) and they must not own, or jointly own, a house or any other property or land and you must not have debts of more than £17,000. 

In addition to the above conditions they also need to have been in receipt of benefits for at least 6 months or have been assessed as not required to make a contribution towards the bankruptcy. They also require a Certificate for Sequestration which must have been signed by a qualified money adviser.

Certificate for Sequestration Route (CFS) - this route was introduced to provide debt relief for those debtors who could not demonstrate that they met the requirements for apparent insolvency. This route was introduced by the Home Owner and Debtor protection (Scotland) Act 2010 (click here to view act) and requires a money adviser or insolvency practitioner to declare that the debtor is unable to pay their debts as they become due.