The information on this page is about Full Administration bankruptcy (Sequestration). Minimal Asset Process (MAP) bankruptcy has different terms and conditions.
Bankruptcy and fraudulent debt
Bankruptcy will not write off any debts you got fraudulently. Like benefit fraud.
Your creditors may still get in touch about these, and you will have to pay back what you owe.
Your trustee will tell you if this affects you.
Important information about bankruptcy
You need to know how your assets, home and job could be affected.
Your trustee will look at your finances and what you can pay towards your debts. They also look at what you and your family need for essential spending.
They may also look back at your situation over the last five years. This means you have to be open and honest with them.
Conditions of bankruptcy
There are some restrictions:
- If you apply to borrow more than £2,000 you must tell the lender you are bankrupt. This is also the case for joint borrowing.
- You must not borrow any amount if you have taken out £1,000 or more of debt, since your bankruptcy without telling the lender you are bankrupt. This is true if you borrow in your name or jointly
- You cannot set up a limited company or act as a company director
- You must not hide assets (items of value)
- You must work with the trustee. You cannot refuse
- You cannot act as a member of the Scottish Parliament. Or any local council or a school board
- You cannot act as a Justice of the Peace
If any of these are not followed your bankruptcy might be extended. In rare cases, you could be prosecuted. This could result in a fine and/or prison.
If you have power of attorney to act for another person:
- You will need to check if this will be affected
- Your trustee will be able to help with this.
Your bankruptcy conditions can be extended
Your conditions could be extended for up to 15 years if you:
- Do not work with the trustee during your bankruptcy
- Take out debts before going bankrupt that you knew you could not pay back
- Have debts from gambling or fraud
- Have run a business dishonestly
The trustee can extend your conditions if they decide you have done any of these. This is called a ‘bankruptcy restriction order’.
To add restrictions for five years or more, the trustee must apply to the Sheriff Court.
Your bankruptcy will be recorded on a public register
It will be put on the ‘Register of Insolvencies’ for at least five years.
Speak to us if you think you would be at risk if your name and address appeared on the register.
What happens if my financial situation improves?
You may have to pay towards your debts. This will be based on what you can afford.
If your finances improve after you are made bankrupt, you will need to talk to your trustee.
They will review your budget to see if you have any money left after your essential living costs are paid. If you do, you will have to pay this money to them. These payments are made through a ‘debtor contribution order’. It lasts for four years from your bankruptcy award date.
If your situation changes, and you can no longer afford to pay your contribution, your trustee can:
- Amend the payment. Or
- Give you a ‘payment holiday’ period. This means your DCO will last longer than four years
If you get a lump sum of money after your bankruptcy has been awarded, this can be claimed by the trustee. This could be an inheritance, personal injury compensation or refunded payment protection insurance (PPI). This applies for four years after your bankruptcy is awarded.
Bankruptcy and your assets
Bankruptcy is based on your personal situation.
The trustee has the final say on what is or is not included. We cannot guarantee what assets they might decide to sell.
What happens to your assets will become clearer once speak with your trustee.
They decide what you need to keep a reasonable standard of living. They will allow you to keep the following:
- Tools of the trade up to a value of £1,000. These are things you need to do your job
- Personal belongings. Like your clothing and furniture
- Household and electrical goods needed by you and your family
- Computers
- Children’s toys
If you have given away or sold any goods for less than their value, or deliberately made payments to some creditors but not others, the trustee will try to get the goods or money back. This includes loans from friends or family.
For example, if you sold your car to a friend for less than its true value, they may try to recover the car.
You can keep any money saved in a regulated pension, or approved pension scheme. However, any income or lump sum payments you get could be affected.
Bankruptcy and your home
If you own your home:
It is possible that the trustee may sell your home or any property owned by you.
From the date your bankruptcy is awarded, they have one year to decide if they are going to sell your home.
This decision will be based on the property’s value and the amount of equity you have in it. They will normally have up to three years to sell it. But the trustee may take longer than this.
Before going bankrupt, you need to tell anyone else named on the mortgage, as they will also be affected.
You may find it useful to seek impartial legal advice before going ahead.
If you rent:
If you have a tenancy agreement, you should check it before applying.
Some tenancy agreements have bankruptcy clauses. They give the landlord the right to:
- End the agreement, or
- Refuse to renew, or continue your tenancy. Short term tenancy agreements (usually 6 months or less) can be cancelled by the landlord without any reason given. A bankruptcy clause is not needed.
Bankruptcy may also make it harder to get a new tenancy in the future.
Your landlord will only be told about your bankruptcy if you have rent arrears. This is because these will be included in your bankruptcy.
However, your bankruptcy is kept on the public Register of Insolvencies and is shown on your credit file.
Bankruptcy and your job
There are some positions you cannot hold when you are bankrupt. This is often where you are in control of other people's money. Examples could be solicitors and many roles in financial services.
Before you apply, you should find out if there are any risks to your role by:
- Checking the terms and conditions of your employment contract
- Speaking to your employer, trade union or professional body
Bankruptcy and pensions
You may be thinking about taking money from a pension, later on.
Money you have saved in pensions is not seen as an asset during bankruptcy. This is only true for regulated pensions and approved pension schemes.
However, any money you get as income or a lump sum will be affected. A lump sum is a single amount of money, usually a large amount. The trustee may add it to your bankruptcy payments. This is the case for up to four years after bankruptcy is awarded.
Your trustee could take your lump sum payment and decide whether you can afford to pay more from your pension each month.
Find out how your pensions could be affected by contacting:
- Your pension provider
- Money and Pension Service (MaPS), a free and impartial government service
- A regulated independent financial advisor (IFA)
During your bankruptcy you can usually keep paying into a pension. But you might have to reduce how much you pay into it.
Bankruptcy and your bank account
You should open a basic bank account for your day-to-day banking. It is a good idea to do this before going bankrupt.
You may be able to stay with your current bank if they are happy to give you a basic bank account. You can apply for a basic account with another bank if not.
Your account can be frozen any time after your bankruptcy is awarded. This means you will not be able to use it. If it is frozen for more than a week, you can contact your trustee and ask them for a letter to give the bank, to ask that the account is unfrozen.
The bank may decide to close your account, especially if you owe them money. If this happens, you will need to ask a different bank for a 'basic' account.
Find out more about how basic bank accounts affect your debt solution.
Bankruptcy and credit agreements
Ongoing credit agreements may be cancelled if you go bankrupt. This may be the way you pay your home and car insurance, or a mobile phone contract.
To avoid losing such goods or services, you should speak to your provider. You may be able to pay for the policy or contract in full, or they may agree for you to pay off the remainder before you go bankrupt.
You will also need to tell anyone else named on the agreement or policy that you are going bankrupt.