Personal
Difficulties > Sequestration/Bankruptcy
On 1 April 2008 a new bankruptcy act comes into force in Scotland.
The main changes to the existing bankruptcy proceedings are:
- Debtors will be discharged automatically from their debts after one year instead of the current three years;
- Debtors will apply to the office of the accountant in bankruptcy (the State ) instead of the Sheriff Court when petitioning for their own bankruptcy . Creditors will still use the court system and have an obligation to prove to court that they have taken every step to ensure the person being pursued has received debt-advice information;
- There will be a new simplified route into bankruptcy for individuals with low income and low assets (LILA);
- The debt threshold for bankruptcy will increase from £1,500 to £3,000;
- The family home will be revert to the debtor if the trustee does not commence steps to sell it , or otherwise deal with it , within three years of sequestration;
- There will be power to impose Bankruptcy Restrictions Orders and Bankruptcy Restriction Undertakings lasting between two and fifteen years on debtors who pose a risk to public or commercial interests;
- Student loans will not be written off at the end of the bankruptcy;
- Income payment arrangements and income payment orders, which can last a maximum of three years will be introduced as a means of recovering contributions to the sequestrated estate.
Such changes bring Scotland into line with England where similar bankruptcy reform was introduced in April 2004. The changes will only affect new bankruptcies granted from the date that the legislation is introduced and the current rules will remain in force for all existing cases.
The
easiest method of providing information on this process
is by using a questions format:
What
is Sequestration?
Sequestration
is a formal insolvency process for individuals and partnerships
in Scotland . Sequestration is the Scottish term for bankruptcy
and usually lasts for 3 years, although a recent consultation
paper published by the Scottish Executive, entitled "personal
bankruptcy reform in Scotland - a modern approach" proposes
that the law is redefined and developed such that many of
the changes introduced by the Enterprise Act 2002 in England
and Wales are adopted in Scotland . The principal proposal
is a one year bankruptcy which will bring Scotland into
line with this period in England & Wales which was introduced
on 1 April 2004 .
Further details
will be provided on this website when known.
How
can I become bankrupt?
Before you can
be sequestrated by a creditor you must owe at least £1,500
to a creditor who is required to take legal steps to enforce
or demand the repayment of such debt. The effect of this
is to make you "apparently insolvent".
You will be apparently
insolvent if one or more of the following apply:
-
you have failed
to pay any creditor any debt due by you under a decree
of court, and a charge for payment of that debt, you
are given 14 days to pay, has expired without payment
having been made.
Sequestration
at the instance of a creditor
You can be sequestrated
on the petition of a person or company you owe at least
£1,500. It is also possible for 2 or more creditors
to whom you owe jointly at least £1,500 to apply collectively
for your sequestration. The creditor(s) make an application
either to your local sheriff court or the court of session
in Edinburgh .
The court will
issue a warrant to cite interlocutor which will be served
on you either by recorded delivery post, or by a sheriff
officer. The warrant to cite will invite you to appear in
court on a certain date. You do not have to attend court
unless you wish to persuade the court that you should not
be sequestrated.
If you do not
wish to go to court, a solicitor can attend on your behalf.
An award of sequestration is normally granted unless you
can produce valid documentary evidence to court that the
debt has been settled; you provide cash or a banker's draft
in settlement of the debts and costs, or that you have provided
sufficient security for the debt.
If you do not
appear, you will be sequestrated. The sequestration commences
from the date the court issues the warrant to cite, and
is referred to as the date of sequestration.
If you are served
with a citation or summons, you may wish to seek advice
from a solicitor immediately. If you are in receipt of income
support or have modest income, you may be entitled to free
legal advice from a solicitor participating in the legal
advice and assistance scheme.
Declaring
yourself bankrupt
You might wish
to present a sequestration petition to your local sheriff
court to stop creditors from taking other forms of debt
recovery against you e.g. an earnings arrestment, or simply
to obtain relief from an intolerable debt burden.
There are certain
requirements which must be met before you can apply to court
for your own sequestration. You can apply if you are:
Even if you are
not apparently insolvent, you may still apply if you have
the written agreement of a creditor or creditors who can
prove you owe at least £1,500.
Finally, you can
apply if you signed a trust deed which failed to become
a protected trust deed because the requisite number or value
of your creditors objected to it. Trust deeds are dealt
with in more detail elsewhere in this website. Click
here for trust deed information.
If you are eligible
and decide to apply for your own sequestration, there is
a statutory form which you must complete. This form is called
a debtor's petition and may be obtained from your local
sheriff court, accountant in bankruptcy, an insolvency practitioner,
a solicitor, citizens advice bureau or other debt advisory
centre. If your application is approved by court, your sequestration
will be effective from the date of the court's decision
to award sequestration
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How
much does it cost to petition for my sequestration?
The 2004 filing
fee is £63. Court fees are reviewed regularly and
you should contact the court to confirm the current fee.
If you ask a solicitor to prepare and present the petition
he may wish to charge a fee : but check to see if you are
eligible for legal aid. Generally, all other costs of the
sequestration process will be recovered by the trustee from
your assets or in some cases from the Scottish Executive.
You will not be liable for any costs once the award of sequestration
has been made by court.
Can
I choose my trustee?
If you are sequestrated
by a creditor he may ask the court to appoint a specific
insolvency practitioner as trustee. You may also do this
if you are applying for your own sequestration. The insolvency
practitioner must agree in writing to the nomination and
will want to ensure that there will be sufficient realisable
assets to cover his costs.
Where there is
doubt about the level of assets available, or an insolvency
practitioner is unwilling to act, the court will appoint
the accountant in bankruptcy to be your trustee. The accountant
in bankruptcy may administer your sequestration internally
or appoint an insolvency practitioner who practises in your
area to act as agent. It will make no difference to you
and you will always be advised who is acting in your sequestration.
The accountant
in bankruptcy, Mrs Gillian Thomson, is a government official
responsible for supervising personal insolvencies in Scotland
. The accountant in bankruptcy's office is based in Edinburgh
and staffed as appropriate. The accountant in bankruptcy
acts as trustee in all sequestrations except those in which
an insolvency practitioner agrees to act.
What
are my obligations during the period of sequestration?
When the court
appoints a trustee he will contact you. If you have been
sequestrated by a creditor, you will be asked to provide
a written statement showing all your assets, liabilities
and your average weekly/monthly income and expenditure pattern.
If you applied for your own sequestration you will have
already provided this to court as part of the sequestration
petition.
The trustee may
wish to visit your home and any business premises owned
or rented by you in order to verify your written statement.
He may request further information from you or may ask you
to visit his office for a meeting. If it is found that you
failed to give a full and complete list of your assets and
liabilities, you may be liable to criminal charges and,
if convicted, you could be fined, imprisoned, or both.
When meeting/corresponding
with your trustee, you must by law:
-
inform the
trustee of any change in your financial circumstances
e.g. if you are unemployed and get a job, if you get
a better paid job or position, if you inherit money
or property, or receive money from any other source
i.e. a lottery win. Any money or property you receive
before the date of your discharge must be handed to
your trustee.
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What
can't I do during the period of sequestration?
Will
I be able to keep my property?
You will normally
be allowed to keep items required for day to day living,
such as beds, sofas, cookers. A list of these items is provided
below for guidance. You can also retain tools of your trade
up to a value of £1,000 and a vehicle valued at less
than £1,000. If you have a more expensive vehicle,
guidance will be provided by your trustee and may be linked
to the contribution that you are able to pay. A detailed
list of asset which you can keep is contained in section
16(2) of the Debtors ( Scotland ) Act 1987.
Items in a house
which are reasonably required for the use in the dwellinghouse,
i.e. by you or by members of your household:
-
beds or bedding
-
household linen
-
chairs or settees
-
tables
-
food
-
lights or light
fittings
-
heating appliances
-
curtains
-
floor coverings
-
furniture,
equipment or utensils used for cooking, storing or eating
food
-
refrigerators
-
articles used
for cleaning, drying, mending or pressing clothes
- articles used for cleaning the house
- furniture used for storing
- clothing, bedding or household linen
- articles used for cleaning the house; or
- utensils used for cooking or eating food
-
articles used
for safety in the house
-
tools used
for maintenance or repair of the house, household articles,
or the garden
-
children's
toys and educational materials
-
computers and
accessory equipment
-
microwave ovens
-
radios
-
telephones
-
televisions
-
articles with
sentimental value and deemed to be worth less than £150
-
clothing reasonably
required for your use or any member of your household
-
medical aids
or medical equipment reasonably required for your use
or any member of your household
-
books or other
articles reasonably required for your education or training
or a member of the household, the value of which does
not exceed £1,000
The trustee can
sell articles which he does not consider essential to your
living requirement and/or of high value e.g. jewellery or
antiques.
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What
will happen to my house?
Rented
Property:
If your house
is rented, the trustee does not normally have any interest
in the property. However, if he considers that the rental
is using up too much of your earnings such that you cannot
pay a reasonable contribution to the sequestration he may
advise you to move.
If you are in
arrears with your rent, your landlord will be able to lodge
a claim with your trustee.
Sequestration
may mean that your landlord has the right to terminate your
lease and it is up to you to negotiate with your landlord
if you wish to remain in occupation: probably on the understanding
that you keep up to date with ongoing rental payments. If
you fail to maintain payment of rental payments after sequestration,
the landlord may well terminate the lease and seek your
removal.
Owner
Occupied Property:
If you own your
home, your ownership interest in the property will transfer
automatically to your trustee and it is his duty to obtain
value for it, if at all possible. This may mean selling
it on the open market.
However, before
he can sell the property, there are several points to consider.
For example, is there a mortgage? If the organisation to
whom you owe the mortgage has commenced proceedings to repossess
the property, the trustee cannot stop the proceedings. The
lender may be involved in deciding which is the most appropriate
course of action to follow if mortgage payments are up to
date but the level of equity i.e. the difference between
the probable selling value and secured borrowings tends
to be the deciding factor.
If the house is
owned jointly, the trustee will have an interest in your
share of the property. The trustee may not sell your interest
in the property without the co-operation and consent of
the joint owner. The trustee may allow the sale of your
share at an agreed price to the other joint-owner, provided
he/she has not also been sequestrated.
This is a complex
area and there are numerous situations which can arise.
Specialist advice should be taken from a solicitor.
How
long will my sequestration last?
As long as you
co-operate with your trustee, your sequestration will normally
end 3 years after the date of sequestration. However, if
you do not co-operate fully with your trustee, the court
may extend the period of your sequestration for successive
periods of up to 2 years upon application being lodged by
your trustee.
What
happens to my debts after I am discharged?
Except in the
case of mortgages and other debts secured over heritable
property e.g. your main house, where the secured lender
can still take action to call up the loan, your creditors
can take no further action against you to recover their
debt once you have been sequestrated. Once you are discharged,
normally after 3 years, you are no longer liable to pay
unsecured debts other than a few exceptions: court fines
and debts arising from fraud. Social fund loans or overpayments
of benefit may be deducted from current benefits by your
benefits office.
Your discharge
does not apply to any debts you may have incurred after
you have been sequestrated. These will remain for you to
pay e.g. ongoing council tax.
What
happens to my assets after I am discharged?
Assets which exist
as at date of sequestration, or come into your ownership
and remain unsold for whatever reason by the time you receive
your discharge, are not returned to you but remain the property
of your trustee. This includes your house or your share
of it if it is owned jointly. Only assets acquired after
your discharge belong to you.
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Frequently
asked questions
Will my
neighbours find out?
The only public
notice of the proceedings is in a publication called The
Edinburgh Gazette which is an official publication and not
usually bought by members of the public.
Do I have
to attend court if I receive a sequestration petition?
Not normally.
You only attend court if you wish to dispute the validity
of the petition or can prove that sequestration should not
be awarded e.g. you have paid the debt.
Will my
employer know?
Not unless your
contract of employment requires you to tell your employer.
Your trustee will require to establish/confirm the level
of your income and as long as you can provide him with a
payslip or P60, it is unlikely to be necessary to contact
your employer.
Can
I operate a bank account during my sequestration?
Your bank manager
should be informed of your status as an undischarged bankrupt
immediately. Some banks and building societies do not offer
banking facilities to an undischarged bankrupt and those
that do are unlikely to provide you with an overdraft or
cheque book.
What will
happen to my wages?
The trustee will
consider the level of your income and discuss with you how
much you need to maintain a reasonable standard of living
for you and your family. Anything left over may be claimed
by the trustee as a voluntary contribution to your sequestration.
If you and the trustee cannot agree the amount of contribution,
the trustee can ask the court to fix a contribution, which
is similar to a wage arrestment.
Will
I have to contribute if I am in receipt of state benefits?
If
your only income consists of state benefits, it is unlikely
that a contribution will be payable.
What happens
to goods which I have on hire purchase?
Such items remain
the property of the company which supplied them and the
company may wish to recover the goods from you. However,
depending upon the type of hire purchase agreement and the
level of equity in the related asset, your trustee may be
able to take possession of the goods and sell them.
What is
the effect of sequestration on the supply of gas, electricity
and telephone services?
Electricity:
The supplier
may require the installation of a meter at your house
for pre-paid meter cards. Some suppliers may agree to
arrangements for monthly payments.
Gas:
You may be required
to arrange for weekly/monthly installment agreement.
Telephone:
The supplier
may continue supplies in your name but request a deposit
or ask a third party such as a spouse or other relative
to provide a guarantee accepting liability for any future
supply.
General:
All outstanding
electricity, gas and telephone bills as at date of sequestration
will be treated as unsecured claims in your sequestration.
You should not pay any arrears and any meters which have
been adjusted to collect arrears will have to be re-adjusted
to take account of current useage only.
In order to avoid
embarrassment and ensure regular ongoing supply without
difficulty, some people transfer utilities into the name
of their spouse/partner.
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