It is the term used in Scotland for Bankruptcy. Bankruptcy is a legal declaration that someone cannot pay their debts. If you cannot afford to pay your debts as they become due, you may be able to apply to the Accountant in Bankruptcy for your own bankruptcy. Your creditors or a trustee in a trust deed may also make you bankrupt by submitting a petition to the sheriff court.

If you are declared bankrupt, control of things that you own, including your home, is passed to your trustee (the person who administers your bankruptcy). Their job is to offer a return to your creditors by seeking a contribution from your earnings or by selling your assets.

The following are some of the consequences of becoming bankrupt:

Employment

Some employers do not allow people who are bankrupt to work for them, most commonly financial institutions. Before you sign your application form, you should check the terms of your contract carefully or speak to your employer.

Credit Rating

Credit Reference agencies will record details of your bankruptcy and your credit rating will be affected. It may become difficult or more expensive to get credit after your bankruptcy.

Bank Accounts

Your bank may freeze or close your account and you may have to open a different bank account. Your bank may still allow you to have your salary or benefits paid into an account but if you owe them any money they are likely to close your account, or insist that you bank elsewhere.

If you experience any difficulties with your bank account when you are bankrupt, you should speak to your bank or your Trustee.

Public Records

Your bankruptcy is recorded on a public register called the Register of Insolvencies (RoI). Creditors and credit reference agencies use this register to find out if their current customers have been made bankrupt. Anyone can search the RoI free of charge. Details of your bankruptcy will remain on the RoI until 2 years after your trustee has completed their duties and obtained their discharge. The RoI lists details of Scottish bankruptcies (sequestrations) and trust deeds only.

Individuals (including sole traders), some business and partnerships, trusts and some other unincorporated organisations can be made bankrupt. Limited companies registered at Companies House cannot be made bankrupt. A deceased individual’s estate can be made bankrupt by an executor.

Minimal Asset Process (MAP) is a route into bankruptcy which requires you to meet certain criteria. You must not have a single asset worth more than £1,000. This excludes a vehicle worth up to £3,000 which you reasonably require, for example, to get to work. The total value of your total assets cannot be more than £2,000 (excluding a vehicle mentioned above).  You must not own wholly, or jointly, a house or any other property or land and you must not have debts of more than £17,000.

To qualify for bankruptcy through MAP you have to meet the above conditions and 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 your bankruptcy. You will also require a Certificate for Sequestration which must have been signed by a qualified money adviser.

Apparent Insolvency is a legal term that shows you cannot pay your debts as they become due. The most common types of evidence used to prove Apparent Insolvency are:

A Charge for Payment – this is a legal document with the words ‘Charge for Payment’ at the top. It means that you owe money to a creditor and that you should pay them within 14 days. If you do not pay within this period, the Charge for Payment expires and can be used to prove you are apparently insolvent from the 15th day it was served on you.

A Statutory Demand – this is a formal demand for payment and if you do not pay within 21 days, the Statutory Demand expires and can be used to prove you are Apparently Insolvent from the 22nd day it was served on you.

A Charge for Payment and Statutory Demand are normally served by a Messenger-at-Arms or a Sheriff Officer.

If you have been granted a trust deed, this constitutes Apparent Insolvency. However, you can only be made bankrupt by the trustee in your trust deed or creditors if your trust deed has failed, or if your trustee believes that it is in the best interest of your creditors. You cannot apply for your own bankruptcy if you have entered a trust deed which has become protected.

If you have had a debt payment programme in the Debt Arrangement Scheme this also constitutes Apparent Insolvency.

You or your creditors can only apply for your bankruptcy if the DPP has been revoked and a creditor has undertaken diligence (legal action) against you.

A Certificate for Sequestration is granted by an authorised person and certifies that you have demonstrated to them that you are unable to pay your debts as they become due. This may involve submitting evidence of your income, assets (such as funds held in bank accounts) and evidence of your liabilities (such as invoices and demand notices).

Most money advisers, insolvency practitioners and some people who work for insolvency practitioners are authorised to grant a certificate.

You can use the Certificate for Sequestration to apply for your own bankruptcy. You must apply within 30 days of the certificate being issued or it will no longer be valid. There is no charge for obtaining a certificate for sequestration, but the authorised person may charge you a fee for the advice they give you.

If you have decided that you want to make yourself bankrupt you must meet all of the following conditions:

• You 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 you own assets valuing £2,000 or more then you can only apply for bankruptcy under the full administration route
• You must have received money advice from a money adviser
• You 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
• You must not have been made bankrupt in the last 5 years
• You cannot apply for bankruptcy through MAP if you have been made bankrupt through MAP in the previous 10 years
• You must pay the application fee

You must also meet one of the following conditions:

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

Depending on which route into bankruptcy you apply through 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.

Creditors

If you owe someone money they may be able to make you bankrupt. Your creditors can ask a sheriff to make you bankrupt if:

• You owe them at least £3,000 – this will include any fees, interest or charges added to what you owe
• They have provided you with a copy of a statutory booklet called the ‘Debt Advice and Information Package’
• You are Apparently Insolvent.

Usually it can be granted within 5 working days.

If you apply for bankruptcy under the MAP criteria, The Accountant in Bankruptcy will be your trustee. Otherwise, when applying for your own bankruptcy, you can choose your own trustee. Your Trustee requires to be a Licensed Insolvency Practitioner.

The Accountant in Bankruptcy (AiB) is a Scottish Government official who is responsible for the process of personal bankruptcy in Scotland.

The Accountant in Bankruptcy also supervises all Trust Deeds and Sequestrations in Scotland.

At the beginning of your bankruptcy, your trustee will ask you to provide information about your finances and your assets. They will also require information about what you owe, who you owe money to, your income and what you spend month to month for your living expenses. Your trustee is entitled to ask you to provide evidence of this, such as wage slips, bills and bank statements.

If you are awarded a full administration bankruptcy, your trustee may interview you at home, visit your business premises or ask you to come to their office. They may also write to you or speak to you on the telephone. They will also manage your Debtor Contribution Order (DCO) which will last 48 months or the weekly equivalent (unless you have sufficient assets to be able to pay off your bankruptcy in full). Every 6 months after your bankruptcy is awarded, your trustee will ask you to complete a form called a Current State of Affairs which will confirm your circumstances at that time.

You must always co-operate with your trustee. Failure to do so can result in your bankruptcy lasting longer or restrictions being placed on you.

It is important that you understand your responsibilities. These are some of the things you must and must not do.

You must:

• Co-operate fully with your trustee at all times
• Keep your trustee informed of any changes in your circumstances, for example, if you move house or if your financial circumstances change.

You must not:

• Get credit for goods or services for more than £2000 from any lender or supplier without telling them that you are bankrupt. You may be guilty of a criminal offence if you do not tell them about the bankruptcy
• Start up a limited company or be involved in the day-to-day management of a limited company
• Act as a Member of the Scottish Parliament, as a member of any local council, a Justice of the
  Peace or a member of a school board.

Your trustee will ingather your assets (the things that you own), including any land and buildings, and sell them to pay the costs of managing your bankruptcy and your debts.

Your assets are items such as money, savings, property, vehicles, life policies, jewellery, shares and Payment Protection Insurance Compensation (PPI). Control of your assets passes to your trustee when you are made bankrupt. The right to any money or assets due to you, such as business debts, also transfers to your trustee.

You will normally be allowed to keep items you need for day-to-day living, such as clothes, furniture, household linens, floor covering, anything used for cooking or cleaning, educational items and children’s toys. You can also keep any tools you need for your trade, up to a value of £1,000. You may be able to keep a vehicle reasonably required by you that has a value of no more than £3,000.

During your bankruptcy you must tell your trustee about any new assets you acquire. This could include, for example, money or an inheritance.

If your trustee thinks you have sold, given away or disposed of any asset within the 5 years before your bankruptcy for less than their value, they can ask the Court to have the transaction reversed and the asset returned.

What happens to your home will depend on a number of things, such as whether you own, or live with family
or friends.

If you own your home, or any other property, control will transfer to your trustee along with your other assets. Your trustee will always carry out a search of the Land Registers to make sure you own the property. Your trustee can sell your home or allow your spouse, partner or family member to buy out the trustee’s interest in it. If your trustee decides to sell it, the property may be sold on the open market. Your trustee must obtain the best price possible. You are not allowed to sell any property you own.

Your trustee will take many things into consideration when deciding what to do with the property, including the value, whether you have any loans secured on it and if there are children or other dependants living in the property.

If you do own a property, either on your own or with somebody else, it is in your best interest to obtain independent legal advice as soon as possible and preferably before you are bankrupt. Even after you are discharged from your bankruptcy, your trustee may continue to deal with your property. It does not automatically transfer back to you.

If you used to own all or part of a home (or any other property) and sold it or gave it to your spouse, partner or to anyone else, your trustee will check that you sold it for full value. Your trustee will also ask you to explain what happened to any money you received for the property. If you have disposed of your home or tried to hide any proceeds from a sale, you may have committed a criminal offence under the Bankruptcy (Scotland) Act 2016. Your trustee may report you to the Procurator Fiscal and, apply for the transfer of the property back into your name.

If you own your home jointly with your
spouse, partner or someone else, your trustee will discuss options with all parties. Co-operation of the joint owner(s) will minimise the stress and costs of dealing with your share of the home.

Your trustee can agree to the joint owner(s) buying out their interest in the home. This can be in a lump sum payment, by instalments or through a re-mortgage package. Your trustee and the joint owner(s) will each be responsible for their own legal expenses.

Where the home or property is jointly owned, the joint owner cannot sell without the permission of your trustee.

If you have a loan secured on your house and you do not continue to make your mortgage or loan repayments, your secured lender can repossess the house. Your trustee is powerless to stop the repossession of the property. If your house is repossessed and is sold by the lender, any proceeds left after your debt is paid will be transferred to your trustee. If there is a shortfall with the sale this may be included in your bankruptcy as a claim in your estate.

If you rent your home, your trustee normally has no interest in the house provided you can show proof that it is rented.

Your trustee will need to know about any life assurance policies you have as they may be assets in your bankruptcy. Some policies only pay out on death. Other policies, for example, endowment policies, pay out either on death or on a predetermined date. Your trustee will register their interest in your life policies which means that in the event of your death during the bankruptcy, the funds from the policy will be paid to your bankruptcy. Endowment policies or policies with an endowment element acquire a surrender value and may also be cashed in. Your trustee may do this to bring funds into your bankruptcy. Often an endowment policy will be formally assigned to your bank or building society to pay off all or some of your mortgage with the proceeds of the policy.

What happens to your assigned endowment policy when you are bankrupt will depend on what happens with your house.

These items often remain the property of the company which supplied the finance for their purchase. They may be taken away and sold by that company.

Your trustee may want you to make a contribution from your income or pension to help towards the cost of your bankruptcy and repayment of your debts. They will not take a contribution from social security benefits or tax credits.

Your trustee or money adviser (as part of the application process), will assess your income and expenditure to calculate if you have any surplus income available to make a contribution.

The Accountant in Bankruptcy will make a Debtor Contribution Order (DCO) fixing your contribution. The DCO lasts for 48 months or the equivalent weekly period. Your trustee will oversee all contribution payments.

If your circumstances change you must advise your trustee immediately. If there has been any significant changes to your income or expenditure, your trustee will re-calculate your DCO. If you are on social security benefits only, a DCO will be made, fixing your contribution at zero. This will only change if you gain employment or start receiving income other than benefits before you are discharged from bankruptcy. Your trustee will ask you to make a contribution if after an assessment of your finances it shows that you have surplus income. Your contribution will then be amended with an amount to pay. This will run for the remainder of the DCO.

Every 6 months, until your DCO ends, your trustee will send you a questionnaire to review your financial circumstances. This form is called ‘A Current State of Affairs’. You must complete and return this. It is important to keep your trustee up to date with any changes i.e. change of address, contact details, income
and expenditure. If your trustee cannot make contact with you they will assume that you are not co-operating and may request your discharge from bankruptcy will be deferred indefinitely.

If you are unhappy about your DCO you can request a review to be carried out by AiB.

Your trustee will distribute the money ingathered. They will invite claims from all your creditors. Your trustee will deduct their fees and costs and distribute any remaining funds to your creditors. Any payments (known as dividends) made to your creditors may not cover the full amount of the debt. Any remaining debts will be discharged and you will not be obligated to pay them.

The costs of administering your bankruptcy will be met from funds accumulated from the sale of your assets and from contributions that you made from your income. These include the fees and costs of the trustee and will be paid before any payments are made to your creditors.

When The Accountant in Bankruptcy is the trustee, costs that cannot be met by selling your assets or from contributions will be met from the public purse. However, the public purse will not make any payment toward the debts owed to your creditors.

Where the sale of assets and income from your contributions produce enough funds to pay all the administration costs, a creditor who petitioned for your bankruptcy may then have their outlays (costs incurred in making the petition reimbursed). Their debt and the debts of other creditors are then considered equally after this.

Usually you can be discharged from the restrictions of Bankruptcy after 12 months, however, your Trustee is likely to remain in office for up to 4 years.

There is one way which your bankruptcy can end sooner, this is called Recall. Recall can be achieved by applying to the Accountant in Bankruptcy or the sheriff. Your creditors can object to your recall.

AiB can only grant a recall where you have the funds to pay all your debts, plus interest, fees and charges. If AiB rejects an application for recall, you, your trustee, or a creditor can request a review of that decision from AiB. If you are dissatisfied with that review then you, or the persons previously mentioned, can appeal to the sheriff.

If your trustee considers that your conduct has been dishonest or blameworthy in some way, either before or during your bankruptcy, they will report this to AiB. AiB will consider the evidence provided by your trustee and decide whether a Bankruptcy Restrictions Order (BRO) is appropriate. AiB can only award a BRO for a minimum of 2 years and up to, but not beyond, 5 years. If AiB feel that a longer term BRO is appropriate then the Accountant will request that the sheriff impose a BRO. The sheriff can impose a BRO for between 5 and 15 years. You will remain subject to certain restrictions for the period stated in the BRO even after you are discharged from your bankruptcy. You are committing a criminal offence if you fail to comply with the terms of your Bankruptcy Restrictions Order.

Details of the restrictions are recorded in the Register of Insolvencies.

If you are making a contribution you must continue to pay it to your trustee even after you have been discharged from your bankruptcy. After your discharge, your bankruptcy will not be finished until your trustee has completed the administration of the bankruptcy and they are discharged from their duties. You must continue to cooperate with your trustee until they are discharged.

Any unpaid debts are legally written off.

Your bankruptcy does not end with your discharge. Your trustee still has a duty to sell the assets that transferred to them. Even after your discharge, your trustee has the power to realise any assets. If your trustee has been discharged and then subsequently discovers that you had an asset which they were entitled to sell they can apply to be reappointed as your trustee. This will allow them the opportunity to
ingather the monetary value of that asset, either by selling the asset or having you or a third party buy out the trustee’s interest. A discharged trustee can request reappointment up to 5 years from the date of bankruptcy should they become aware of any assets that they did not previously know about. However, they must be able to show the sheriff that their reappointment would be of benefit to your bankrupt estate.

If there are assets or money remaining at the end of your bankruptcy, and your trustee has recovered all of the costs of your bankruptcy and paid your creditors in full, plus interest, they will be returned to you.

If your trustee decides that they do not intend to sell your house, either on the open market or privately, they will formally abandon their interest in it. Only then are you entitled to sell it. Your trustee must make a decision about whether to sell your house within 1 year of your bankruptcy and must take action within 3 years of your bankruptcy.

Bankruptcy is a last resort for debt relief and you may still have other options. Some of the other options available include:

Trust Deeds

A trust deed is a formal arrangement between you and an insolvency practitioner who becomes your trustee. To enter into a trust deed you must either have assets (this includes your home if you own it wholly or jointly) that can be sold or you must be able to make regular payments to your Trust Deed from your income.

A trust deed can become protected. This means that your creditors cannot take court action against you for the debts you owed when the trust deed was agreed provided you keep to the terms of the trust deed. If your creditors do not agree to your trust deed becoming protected, they can still take legal action to recover what you owe them, including making you bankrupt.

Your trustee can also apply to make you bankrupt if you do not cooperate with them.

The amount that you pay into your Trust Deed is calculated by using what is known as the Common Financial Tool or Statement (CFT or CFS). This is a standard tool which is operated across the UK to ensure that sufficient allowances are given to you to live and pay for the things that are most important.

Debt Arrangement Scheme (DAS)

DAS is a statutory scheme run by the Scottish Government to help you pay your debts by giving you more time to pay without the threat of court action from your creditors. DAS freezes interest, fees and charges on your debt from the date your DAS payment programme is approved and these will be written off if you complete the programme.

Prior to applying for DAS you can submit a moratorium application which will provide you with a 6 week period where your creditors cannot take any diligence (legal action) against you. You can only submit one moratorium application within a 12 month period.

A money Adviser will help you decide if DAS is right for you.