Bankruptcy Scotland: How to Resolve Debt Problems?

Bankruptcy is a formal process in which the Accountant in Bankruptcy or the court declares a person bankrupt. However, in Scotland, the bankruptcy process is known as sequestration.

When a person gets bankrupted, all his finances are controlled by a person known as the trustee. Moreover, the trustee undertakes all belongings and property of the bankrupt. Actually, his objective is to make as much money as possible by selling your assets. This money, in turn, will pay off the debt of the creditors. 

If you enjoy citizenship in Scotland, then apply for bankruptcy, in case, you are unable to repay your debts. Your creditors can make you bankrupt only if you owe them at least £3,000. Make sure to consult with the nearest money advisor before applying for bankruptcy. 

When Can You Opt for Bankruptcy?

Bankruptcy might be an option for you under the following situations:

  • Either you don’t have money or the money is insufficient to cover the debts you owe. If you do not select bankruptcy, then it would take several years for you to repay the debt. 
  • Minimal Assets Process is a form of bankruptcy applicable when you owe debts between £1,500 and £17,000 without any disposable income. However, you can’t apply for this bankruptcy when your property is sufficient enough to repay a part of the debt. 
  • You can’t apply for Minimal Assets Process bankruptcy when the value of your debts exceed £3,000. Only income from benefits will allow you to apply for the MAP bankruptcy. 
  • You can prefer bankruptcy when it is difficult to deal with your creditors. 
  • Your circumstances are most likely to get worse in the near future. Thus, you hardly have chances to earn money for repaying the debt. 

Advantages of Dealing with Bankruptcy

Here are the points that will help you to grasp about the benefits that come along with Bankruptcy:

  1. The creditors won’t contact and ask you for paying the amount you borrowed. 
  2. You can apply to the Accountant in Bankruptcy for stopping your creditors from taking any legal action against you. This process is known as a moratorium for which you can apply once in a 12 months period. 
  3. The moratorium will be in action for 6 weeks. During this period, your creditors won’t try to seize your bank account or send you to prison. You can apply for a moratorium by setting up a trust deed under the Debt arrangement scheme. 
  4. Bankruptcy will stop current enforcement actions like an arrest order sanctioned by the court. Hence, the court won’t have the right to ask your employer to deduct a part of your debt from your wage. 
  5. After the expiry of your bankruptcy, most of your debts will be wiped away. Generally, bankruptcy lasts for about 6 months to 1year. The end of your bankruptcy will depend upon the type of bankruptcy you have. 
  6. However, student loans and criminal fines are exempted from the effects of bankruptcy. 

Disadvantages of Getting Bankrupt

Irrespective of the advantages, Bankruptcy is not void of limitations, such as:

  1. If the court finds that you have enough money to repay the debt, then you have to do that for 4 years. 
  2. If you do not make arrangements for paying off the debt, then the trustee can deduct the amount from your wage. However, you are exempted from contributions in case benefits are your only source of income. 
  3. Bankruptcy will affect your credit rating for 6 years. If you go bankrupt, then the court might ask you to sell your home for making contributions towards debt. 
  4. You won’t be able to apply for prestigious jobs like acting as a director or working in a public company. Even you won’t be able to apply for financial services. 
  5. A bankrupt person doesn’t have the right to run his own business. You won’t be able to borrow money beyond a certain limit. 
  6. If you receive any money or property within 4 years of bankruptcy declaration, then it might be claimed by the trustee. You must cooperate with the trustee to speed up your bankruptcy process. 
  7. The court might ask you to go through training in financial education after getting bankrupt. Along with this, several restrictions might be laid upon your future activities. 

A) Bankruptcy Scotland Act 1985

The Bankruptcy Scotland Act 1985 relates to sequestration and personal bankruptcy of a citizen of Scotland. Section 32 of Bankruptcy Act 1985 lists down the vesting of estate and dealings of debtors after sequestration. 

This act deals with the functions of the Accountant of Bankruptcy with respect to administration. It underlines the responsibilities of a nominated interim trustee, permanent trustee, and commissioners. 

In the next section, it highlights the petitions for sequestrations including a deceased debtor and other estates. It further includes the following aspects: 

Apparent Insolvency

As per statutory regulations of the Bankruptcy Act, a debtor becomes insolvent when he has a sequestrated estate. If he provides written notice specifying that he ceased to pay his remaining debts, then his court will consider him as insolvent. 

Similarly, the debtor can become insolvent by granting a trust deed or receiving a court order against him from England or Wales. 

A debtor will remain insolvent as constituted under the subsections of the Bankruptcy Act. For example, subsection (1)(a) above will consider a debtor insolvent until his discharge. Whereas, subsection (1)(b), (c) or (d) above will consider insolvency until the person recovers his state of repaying debts. 

However, permanent insolvency of a partnership must be in accordance with the foregoing provisions of the Act. 

Presentation of Petitions

 A debtor or by a trustee acting under a trust deed might submit a petition for the sequestration of a debtor’s estate. But, a qualified creditor/creditors can present the petition if the apparent insolvency was constituted within 4 months prior to the presentation of the petition. 

An executor under the trust deed is free to present a petition for the sequestration of the estate of a deceased debtor anytime. Whereas, a qualified creditor or qualified creditors of the deceased debtor can submit the sequestration petition based on the following conditions:

  • The apparent insolvency of the debtor was constituted within 4 months before his death or
  • After 6 months of the debtor’s debt irrespective of the constitution of the insolvency. 

Awarding Sequestration

The court can award sequestration if it is convinced that the Debtor’s petition is in accordance with the provisions of the Bankruptcy Act. The date of sequestration is the date on which the court awards the sequestration under subsection 2 or above. 

It is not the end, there are further provisions relating to the award of sequestration. The debtor, creditor, the interim trustee, permanent trustee, or the Accountant in Bankruptcy can submit petitions for the recall of an award of sequestration. 

Appointment and Resignation of Interim Trustee

The court of Scotland appoints the interim trustee from the list of interim trustees on sequestration. If the debtor agrees or the Accountant in Bankruptcy shows cause, then the creditor or a trustee can present the petition for sequestration. 

If the court thinks, then it can ask the interim trustee to resign from his post. In that case, the court must assign another person at the place of the Interim Trustee. A person appointed as interim trustee can’t decline his appointment for any reason. 

An interim trustee is supposed to notify his debtor or the Accountant in Bankruptcy after receiving his appointment letter. Make a note that the resignation of the interim trustee has no relation to his death. 

Registration of Court Order

After finalising the date of sequestration, the court sends a certified copy of the court order to the undertaker of the register for recording. He sends another copy of the court order to the Accountant in Bankruptcy as well. 

Act 1985 defines the relevant court order as a sequestration petition presented by the debtor, creditor, or trustee acting under the trust deed. 

Accountant in Bankruptcy Scotland

Accountant in Bankruptcy is an Executive Agent or officer appointed by the ministers of the Scottish Government. The accountant has to be an officer of the court of Scotland. Its duty is to administer the process of personal bankruptcy and record corporate insolvencies in Scotland. 

Moreover, the agency is responsible for determining personal and entity bankruptcy applications. When the Accountant in Bankruptcy is unable to exercise his functions, Scottish Ministers can appoint a member of the staff of the accountant to act on his behalf. 

Supervisory Functions of the Accountant in Bankruptcy

The Account in Bankruptcy performs the following functions concerning  the administration of sequestration and personal insolvency: 

1. Supervision

The Account is Bankruptcy is accountable for the supervision of performance by:

  • Interim trustees
  • Trustees
  • Trustees under ‘protected trust deeds’
  • Commissioners

2. Determination of Debtor Applications

The Accountant in Bankruptcy will analyse the applications submitted by various debtors. If he feels, then he will approve the bankruptcy of debtors. 

3. Maintenance of Register 

This government official maintains a register of insolvencies in the prescribed form of the Scotland court. Only the register has to include particulars of:

  • Sequestrated estate
  • Trust deeds that are waiting for registration
  • Interim bankruptcy restrictions orders  and bankruptcy restrictions undertaking
  • Business associations that the Court of Session will wind up

Apart from the aforesaid points, the Accountant in Bankruptcy must prepare the register of insolvencies whenever required for inspection. If a concerned person requests, then the accountant will issue a certified copy of the particular entry in the register. 

4. Preparation of Annual Report

The Accountant in Bankruptcy has to prepare the annual report and present it to the Secretary of State and the Court of Session. He has to specify statistical information relating to the state of all sequestrations. The register of insolvencies must contain particulars of these sequestrations.

 Moreover, the annual report has to highlight the particulars of trust deeds registered as protected trust deeds in the given year. According to the Bankruptcy Act, the Accountant must include particulars regarding his performance. 

5. Freedom to Appoint Personnel

The section 1A of the Bankruptcy Act specifies that the Accountant in Bankruptcy can authorize his staff to carry on his functions in his absence.  Moreover, he can appoint a trustee in the sequestration if he succeeds in satisfying the conditions. 

6. Right to Suspect

The Accountant in Bankruptcy has the authority to suspect that an interim trustee, permanent trustee or commissioner has committed an offence. In case of an offence, the matter must be reported to the Lord Advocate. 

Even he can report to the court whether any trustee fails to execute his function. If the court gets sufficient evidence, then it will remove that particular trustee from his assigned post. 

7. Additional  Rights

If a person requests, the Accountant in Bankruptcy can remove his name from the list of interim trustees. Only he needs to specify that the individual has ceased to perform his functions as an interim trustee. 

B) Bankruptcy Scotland Act 2016

The latest version of Bankruptcy Scotland Act came into force in November 2016. This law was framed after making substantial changes in the previous Bankruptcy Act of Scotland. The Scottish Law Commission suggested the major changes in this law.  

The Scottish Parliament under its consolidation bill procedure passed the Bankruptcy Scotland Act in 2016. Since the Bankruptcy Scotland Act 2014 included the relevant SLC recommendations, the same thing continued for the Act 2016. 

The Bankruptcy Scotland Act 2016 resembles the basic 1985 act with a few modifications. The first part of this Act begins with the tests for sequestration. Then, part 4 highlights the cast list, commissioners representing creditors, and trustees in sequestration. 

In between the pages of the article, one will find the apparent insolvency, debtor income contribution, the priority of debts, impacts of discharging a debtor, etc. Part 14 of the Bankruptcy Act has marked the biggest structural innovation. In the end, part 15 deals more about the sequestration process, grounds of sequestration, and so on. 

Furthermore, there are provisions for transitional and savings. A Westminster order under s104 of the Scotland Act 1998 accompanies the 2016 Act. Thus, this prevailing Act completely replaces the 1985 Act by restating certain provisions and making consequential amendments to other cross-UK and reserved statutes. 

As the Bankruptcy Act, 2016 restates reserved matters in the 1985 Act, the 104 order remains precise. The fees of Accountant in Bankruptcy will continue to remain the same as the Bankruptcy Fees Regulations 2014. 

Role of Bankruptcy Scotland Act

The Bankruptcy Scotland Act plays a great role for both the debtors and creditors. It defines the interpretation of powers of the Accountant in Bankruptcy. The Act further deals with aspects like how to deal with debtors after sequestration and the vesting of his estate. 

Next, it pre-defines the limitation of vesting and the effects of sequestration on diligence. It provides information on how to select and confirm the appointment of a permanent trustee.

Conditions under which the interim trustee can be prevented from performing his functions. In short, the Act highlights each and every aspect necessary for dealing with the Bankruptcy in Scotland.