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Sequestration (bankruptcy in Scotland)

Sequestration is bankruptcy under Scots law. It can write off most of your debts, but it affects your home, your credit file and some jobs. Here is how it works.

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Sequestration is the legal name for bankruptcy in Scotland. A trustee takes over your assets, you may have to pay part of your income towards your debts for 48 months, and most of your remaining debts are written off when you are discharged, which is usually after 12 months. You must get advice from a money adviser before you can apply.

How does sequestration work?

When you are made bankrupt, your assets pass to a trustee, a person appointed to manage your bankruptcy. The trustee is usually the Accountant in Bankruptcy (AiB), the part of the Scottish Government that deals with insolvency, although you can choose an insolvency practitioner instead.

The trustee will:

  • ask about your debts, assets, income and spending
  • deal with your assets, and may sell some of them to pay your creditors
  • work out whether you must pay anything from your income

There are two routes into bankruptcy in Scotland. Full administration, covered on this page, is for people who owe at least £3,000 and have some assets or income. The Minimal Asset Process (MAP) is a simpler route for people with low income and few assets.

Payments from your income

If the Common Financial Tool (the standard way of working out what you can afford in Scotland) shows you have money left after essential costs, you will be asked to pay it under a Debtor Contribution Order. The amount can be zero. Payments last for 48 months from the first payment, so they continue after your discharge.

Discharge

You are usually discharged after one year, as long as you co-operate with the trustee. Being discharged means you no longer have to follow bankruptcy rules, and most of your debts are written off. mygov.scot notes that the full process can last 4 years or longer.

Who can apply for sequestration?

To apply for full administration bankruptcy yourself, you must:

  • owe at least £3,000
  • live in Scotland, or have lived here within the last year
  • not have been made bankrupt in the last 5 years
  • meet one of three tests: be ‘apparently insolvent’ (a legal test your adviser can explain), have a certificate for sequestration from a money adviser confirming you cannot pay your debts (it is valid for 30 days), or have a trust deed that failed to become protected

Money advice is compulsory. You cannot apply on your own. An approved money adviser sends the application to AiB online. Free services such as Citizens Advice bureaux, money advice centres, National Debtline and StepChange can help. You can use an insolvency practitioner instead, but they may charge you. Our page on free debt advice in Scotland has the numbers.

The application fee

The fee is £150. You do not pay it if you get Universal Credit or another listed benefit, if you had help from the Scottish Welfare Fund in the last 3 months, or if the Common Financial Tool shows you have no surplus income.

Can a creditor make you bankrupt?

Yes. A creditor can petition for your sequestration if you owe them at least £5,000. If this is happening to you, get advice straight away.

What happens to your home and belongings?

Your home is at risk if you have equity in it. The trustee can sell your home if it is the only way to pay your debts. Before deciding, the trustee looks at its value, whether children live there and any secured loans against it.

  • The trustee needs your consent, or the authority of a sheriff, to sell your family home. If you or your partner do not agree, the trustee can apply to the sheriff court, and a sheriff can delay a sale for up to 3 years.
  • If the trustee has not acted within 3 years, your interest in the home normally reverts to you.
  • If you own your home with someone else, the trustee can only take your share of the equity, and the co-owner may be able to buy it.
  • Keep paying your mortgage. If you do not, the lender can repossess your home, and the trustee cannot stop that.
  • If you rent, check your tenancy agreement, and tell your adviser if your landlord is one of your creditors.

You can normally keep a vehicle you reasonably need, for example to get to work, if it is worth no more than £3,000.

Want to talk your options through? Tell us a little about your situation and a licensed insolvency practitioner firm will call you to go through every option, including ones that are not a trust deed.

Start your enquiry

May not be suitable in all circumstances. Fees apply. Your credit rating may be affected. Free, impartial advice is available from MoneyHelper and other services.

Which debts are not written off?

Most debts are written off on discharge, but some stay with you, including:

  • fines, including court fines and other penalties due to the Crown
  • compensation orders from a criminal court
  • debts arising from fraud or breach of trust
  • aliment (maintenance) and periodical allowance ordered on divorce
  • student loans

How does bankruptcy affect everyday life?

  • Credit file: bankruptcy can stay on your credit file for at least 6 years, and getting credit will be harder.
  • Public register: your details go on the Register of Insolvencies, which anyone can search. They are removed one year after the trustee finishes managing your bankruptcy, which mygov.scot says is at least 5 years from the date of bankruptcy for most people.
  • Borrowing: while bankrupt, you must tell a lender you are bankrupt before borrowing £2,000 or more.
  • Bank account: your bank may freeze your account, switch you to a different type of account or close it.
  • Work: you cannot be a company director, MP, councillor or Justice of the Peace while bankrupt, and some professions, such as accountancy or law, may be affected.
  • Other effects: any power of attorney you have given is cancelled, and energy suppliers may move you to a prepayment meter.

Scotland is different. Bankruptcy in England and Wales follows a separate system with different rules and a different fee (£680 there). If you have read about bankruptcy on a UK-wide site, check that the information is for Scotland.

What are the alternatives?

Sequestration has serious effects, so it is worth understanding every option first. An adviser can look at your full situation.

  • Minimal Asset Process: a simpler, no-fee route into bankruptcy for people with debts of £25,000 or less, low income and few assets.
  • Protected trust deed: another formal way to have remaining debts written off if it completes, with fees and its own risks. If a trust deed fails, the trustee can petition for your sequestration. Our comparison of a trust deed and sequestration explains the differences.
  • Debt Arrangement Scheme: repays debts in full with interest and charges frozen, and you do not have to sell your home.
  • Moratorium: six months of protection from most enforcement while you get advice.

Official sources

Common questions

How much does it cost to go bankrupt in Scotland?

The application fee for sequestration is £150, paid to the Accountant in Bankruptcy. You do not pay it if you get Universal Credit or certain other benefits, if you had help from the Scottish Welfare Fund in the last 3 months, or if the Common Financial Tool shows you have no surplus income. There is no fee for the Minimal Asset Process.

Can I apply for bankruptcy online myself in Scotland?

No. You must get advice from a money adviser before you apply, and the application is sent to the Accountant in Bankruptcy through an approved money adviser. Free services such as Citizens Advice bureaux, StepChange and National Debtline can help. You can use an insolvency practitioner instead, but they may charge you.

Will I lose my house if I am made bankrupt in Scotland?

Not always, but it is a real risk if you have equity. The trustee can sell your home if it is the only way to pay your debts, and needs your consent or a sheriff's authority to do so. A sheriff can delay a sale for up to 3 years. If the trustee takes no action within 3 years, your interest in the home normally reverts to you.

How long does bankruptcy stay on the register in Scotland?

Your details stay on the public Register of Insolvencies until one year after your trustee has finished managing your bankruptcy. mygov.scot says this is at least 5 years from the date of bankruptcy for most people. Separately, bankruptcy can stay on your credit file for at least 6 years.

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