Bankruptcy (also known as sequestration in Scotland) is a formal method of dealing with debts if other options have failed or aren’t suitable for your circumstances. The consequences of bankruptcy are severe and you shouldn’t make an application without first seeking advice.
For most people, if you reside in Scotland and can’t afford to pay debts of over £3000 when they become due, you may be eligible to apply to the Accountant in Bankruptcy (a public official who awards and administers bankruptcy in Scotland) to make yourself bankrupt. A creditor (someone you owe money to) can apply to court where a sheriff will decide whether or not to make you bankrupt.
If you have a low income and very few assets, you may be eligible to apply for your own bankruptcy through a separate bankruptcy process known as the Minimal Asset Process. Typically, anyone applying through the Minimal Asset Process will have been receiving certain social security benefits and tax credits for at least six months, have total debts of over £1,500 but less than £17,000 and have assets valued at not more than £2,000.
Being declared bankrupt means the trustee (the person who administers your bankruptcy and will either be the Accountant in Bankruptcy or an insolvency practitioner) is given control of your assets with the option to sell them in order to acquire funding to pay off your creditors. These assets include your home, your furniture, your car, investments and jewellery. You will be able to keep some items that are essential for everyday living.
Your trustee can also request a regular contribution from your income during the bankruptcy period.