Scottish Bankruptcy

Scottish Bankruptcy is also known as Sequestration and is a formal debt solution for people who are unable to repay their debt. It’s often considered as a last resort debt solution as people don’t like the stigma of entering bankruptcy, but for many it’s the perfect route to become debt free.

There are many ways to go bankrupt and the correct route will depend on your personal and financial situation.

Bankruptcy holds a stigma that you will never be able to gain credit again, you’ll lose your house and that you’ll generally be socially outcast. When I went bankrupt I felt one feeling greater than any other – shame. I was ashamed that I’d let myself get into this situation. I felt worse about going bankrupt than the fact I didn’t have a job and that’s saying a lot.

When I got some perspective I realised I’d managed to get myself into a horrendous financial situation which no other debt solution could fix. As a result bankruptcy was right for me, but I sought professional and free charity debt advice to ensure this was correct.

If your debt problem is severe then bankruptcy could be the best option for you. Bankruptcy lasts for one year in Scotland, however you can be asked to contribute towards your bankruptcy for 3 years.  This payment arrangement is one way you can repay some of your debt. If you are unemployed and on benefits then you won’t be able to contribute towards your bankruptcy.

There are several ways to go bankrupt in Scotland. The cost of going bankrupt is £200 and this is a fee payable to the Accountant in Bankruptcy who monitor and regulate insolvency solutions (and Debt Arrangement Schemes) in Scotland.

If you qualify for a LILA this is the simplest way to go bankrupt.

LILA stands for Low Income Low Asset bankruptcy. To qualify for a LILA you should earn less than £237.00 for a 40 hour week.  You can’t own a property in a LILA, even if it’s in negative equity. If you own a house then look at the certificate of sequestration route as this would be more suited for you.

If you have any assets worth more than £10,000 in total or 1,000 for any one item then you can’t enter the LILA route.

How do you enter a LILA?

You can enter a LILA by asking for the forms from the Accountant in Bankruptcy. They will send them out in the post, you complete the forms and send them back with your £200 cheque. The cost of administering bankruptcies is proving more costly and the Accountant in Bankruptcy has recently had to increase their fees from £100 to £200.

After the Accountant in Bankruptcy has processed your application you can then expect to receive a letter through the post confirming you are bankrupt.


Bankruptcy via the Certificate of Sequestration came into effect in 2010 to help people who didn’t meet the LILA criteria for Scottish bankruptcy. For instance, if you own a house, even if it’s in negative equity, you can’t enter a LILA.

Before the Certificate of Sequestration was introduced people were unable to enter bankrupt in Scotland and had to wait for a creditor to start proceedings.

Now, you can enter bankruptcy via the Certificate of Sequestration process very simply.

Hot Points

If you come into money during your bankruptcy you should expect to pass this money to your insolvency practitioner. This would include things such as inheritance and monetary gifts from family.

  • You can’t be a director of a limited company for the period you are in bankruptcy (one year).
  • Your credit file will be impacted for 6 years as a result of your bankruptcy with a default being added.
  • If you owe money to your bank where your benefits / wages are paid into then you should open a new bank account with a bank you don’t owe money to before entering bankruptcy. If you don’t then your bank account will be frozen and you could lose any money which is in your account, including your month’s salary or benefits.
  • You will be allowed to retain your house and car as long as they have no equity in them (or usually less than £1,000 equity). For instance if your house has £10,000 equity, then you will be asked to sell your property for the benefit of your creditors.

Professional bankruptcy help

You should seek professional bankruptcy help before taking any steps to enter the debt solution. There’s always a fact or situation which a qualified debt advisor will be able to discuss with you which may be overlooked in your research. You can get Scottish bankruptcy debt help from Debt Support Trust or another free debt advice charity such as the Citizens Advice Bureau.

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John The Bankruptcy Guy

As an ex-bankrupt, John has experienced the highs and lows of credit. It's with this knowledge that he writes Debt Advice Resource - to help others avoid, or navigate out of, the pitfalls of debt.

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