What is Bankruptcy

What is bankruptcy?

Bankruptcy, or sequestration as it is know under Scottish law, is a formal way of dealing with debt  when all other options have failed, 

It starts when someone in debt (debtor) is declared bankrupt by a sheriff or the Accountant in Bankruptcy.  In being declared bankrupt the debtor will had over their estate including their home (if they own it) to their trustee.   The trustee may then ask the debtor to pay a sum over to them from their income (similar to an informal debt management plan or DAS). The trustee will also sell any assets belonging to the debtor to pay off some or all of the money owed to creditors.

The duties of the trustee are to use the money gained from the sale of any of the debtors assets or ingathered from the debtor’s income to

  • pay the costs of managing the sequestration and
  • pay the creditors as much as possible of what is owed to them


 What are the consequences of bankruptcy?

A bankrupt debtor will have to disclose all of what they own and all of what they owe to their trustee. If this does not happen the debtor could face criminal prosecution resulting in a fine or imprisonment, if found guilty.

A bankrupt debtor cannot borrow credit over £250 without telling the organisation or person they wish to borrow from that they are bankrupt.  Failure to do so is a criminal offence.

The debtor is also under an obligation to co-operate with the trustee for as long as they needs to manage the bankruptcy.  Whilst most debtors are discharged after one year, their bankruptcy can continue beyond this if the trustee is still collecting their assets and paying creditors.   

 If an individual has very serious debt problems and there's no realistic way out, then bankruptcy may be the right path to take. But money advice and expert professional advice is essential.


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