Support while you declare bankruptcy in Scotland

With a handful of exceptions, all debts are automatically included in your bankruptcy, whether or not you list them in your application. The following are included:

• Unsecured debts like credit cards, personal loans or overdrafts
• Arrears on priority household bills, such as council tax, rent and utility bills
• Benefit overpayments
• Debts to friends or family members

If any of these debts are jointly owed alongside someone else, your liability for the debt will end but the other person will still be responsible for paying what’s owed.

The kind of debts not included in bankruptcy are:

• Child maintenance arrears
• Criminal fines
• Student loans
• TV licence arrears
• Personal injury claims against you
• Debts you’ve taken out fraudulently
• Debts taken out after bankruptcy is awarded
• Secured debts, in the case where you wish to keep the security

The trustee will ask for proof that a loan has been given. If they accept this loan is legitimate, the friend or family member can submit a claim for the debt.

They would be treated as a creditor and would receive payment in line with other creditors if any money is recovered. The debt would be written off at the end of bankruptcy and following your discharge.

As part of the process of applying for bankruptcy, your income and expenditure will be investigated. There will be a calculation of any surplus that could be used towards paying off your debts or the administrative fee.

This is a Debtor Contribution Order (DCO) and the amount you’ll pay as part of it is fixed by the AiB when they make you bankrupt.

If you don’t have any surplus income the DCO will still be made, but for a ‘zero payment’.

The following are regarded as income which could be included in a DCO:

• All wages, including self-employed earnings and income raised through renting properties
• Non-state pensions
• Tax refunds and benefits arrears payments received after bankruptcy is awarded
• Maintenance payments
• Student loans and bursaries
• Contributions from others in the household
• Lump sum payments, such as personal injury compensation and redundancy

State pensions, tax credits and social security benefits are not included.

The DCO lasts for 48 months. If your circumstances change, you must contact your trustee so they can review your payments.

You're allowed to request a payment break of up to six months If your disposable income falls by 50 per cent or more.

When you go bankrupt, homes, land and property are protected by an ‘inhibition clause’ and recorded on a register used by buyers’ solicitors to check whether a property can be sold. This means you can’t:

• Transfer or sell a home or land
• Take out further secured credit against a home or land
• Use the proceeds from a sales towards anything other than your bankruptcy

This restriction expires three years after bankruptcy being awarded.

Goods bought through hire purchase or conditional sale agreements may be included, depending on the terms of the contract. The trustee will advise you.

If the agreement includes a bankruptcy clause you can:

• Return the goods – any shortfall will be included in your bankruptcy
• If you want to keep the goods – ask the trustee to continue making the payments on the basis that they are essential and you couldn’t reasonably buy a replacement. This might include kitchen appliances or motor vehicles, worth less than £3,000.

Some policies are regarded as assets and so you must tell the trustee about all existing policies. For example:

• Life insurance
• Endowment mortgage
• Other policies with a ‘surrender’ value

Savings in a pension fund approved by His Majesty’s Revenue and Customs (HMRC) aren’t classed as an asset.

In most cases this means the trustee can't take these savings away from you, but there are exceptions to this:

• If you’re seen to be making ‘excessive contributions’ to your pension
• If the pension fund has been used to buy an annuity and you’re now getting an income from it
• If you’ve taken a lump sum, this will be regarded as a cash asset

If the pension fund is not registered with HMRC, for example if it's a foreign pension.

You’re not permitted to transfer assets for free, or for less than they’re worth. Examples include gifting a home to a family member, or selling a car below market value.

If you’re found to have done this during bankruptcy or the five years leading up to your application, you’re at risk of being issued with a fine, a bankruptcy restriction order (BRO), or even a prison sentence.

The legal term for this is ‘gratuitous alienation’.

You can’t hold any of the following offices or roles until you’ve been officially discharged and any bankruptcy restriction order (BRO) has ended.

• Member of Parliament including the Scottish Parliament
• Member of a local council
• A Justice of the Peace
• Member of a school board

Some other jobs and public offices are affected by bankruptcy, such as in the financial sector as some professional bodies and employers have their own policies. It’s important you check your terms and conditions of employment before applying for bankruptcy.

You’re not allowed to act as the director of a limited company or limited liability partnership. You’re also prevented from forming, promoting or managing a company without the permission of the court or be involved in the day-to-day management of a limited company.

Records of your bankruptcy will be automatically removed from your credit file six years on from the date the bankruptcy was awarded, unless it has been extended by a bankruptcy restriction order (BRO).

If you had any creditors who hadn’t defaulted your debt to them, they must update your credit file with a default date before the bankruptcy is awarded.

It's important that you get advice about what to do with your bank account when you go through bankruptcy. If you’re banking with any of the high street banks, your account is likely to be closed or downgraded, but there are alternatives. You can open a basic bank account to handle your regular transactions.

Normally your bank account is frozen for two days while the trustee investigates your situation. This can affect Direct Debits, standing orders, continuous payment arrangements and benefits payments.

Savings accounts, including those in joint names, will often be closed and the funds transferred to the trustee.

Details of all bankruptcies in the UK are published on The Gazette website and in one of the three versions that are printed weekly, in Edinburgh, London and Belfast.

The Gazette entry lists:

• Your name
• Your address
• Your occupation
• The date of the bankruptcy order

You can’t stop your details appearing in The Gazette and they’ll remain on their records permanently.

It’s very unlikely that anyone you know would find this information by accident, and creditors don’t refer to this information when making decisions about lending to you in the future. However, creditors will still be able to look at your credit file and see that you’ve previously gone through bankruptcy.

If publishing your address places you at risk of violence, for example from an abusive partner, you can apply to the court to withhold your address from The Gazette entry.