Bankruptcy, or sequestration as it’s more commonly known in Scotland, is one option for writing off the debt you can’t afford to repay.
The same rules apply whether someone makes you bankrupt (a creditor’s petition) or you make yourself bankrupt (Debtor Application). A trustee is appointed to deal with your assets and liabilities, just as with a trust deed.
If you have the ability, you may have to make a contribution from your earnings. You will usually receive your automatic discharge after 1 year. However, you may be required to make a contribution from earnings for a period of 4 years.
Advantages of Bankruptcy:
- Bankruptcy usually lasts for a fixed period of one year, allowing a fresh debt-free start.
- You gain protection from any further debt recovery action, such as wages arrestment.
- The trustee deals with your creditors on your behalf.
- No court appearances.
- No fees to pay, other than £200 application fee (Debtors Application).
Disadvantages of Bankruptcy:
- Any assets you own may require to be realised. This may mean that your asset is sold. Alternatively, a third party (usually a friend or relative) pays the value of the asset to the Trustee on your behalf.
- Your credit rating will be affected for around 6 years.
- Sequestration may prevent you from doing some jobs.
- Certain types of debt cannot be discharged by sequestration. For example, student loans or any liability due to fraud.
- Your bank may close your account once you have been declared bankrupt.