2. What is bankruptcy?
In Scotland bankruptcy is sometimes called sequestration.
Bankruptcy is a formal declaration that someone is unable to pay their debts. A creditor can petition a sheriff for an award of bankruptcy or a debtor can apply to the Accountant in Bankruptcy, a Scottish Government official, for their own bankruptcy.
When someone becomes bankrupt, a trustee is always appointed to administer the bankruptcy. Control of the debtor's assets is passed to the trustee. It is the trustee's duty to sell a debtor's assets or property and to collect the money raised. The trustee will also consider whether the debtor can afford to pay a contribution towards their debts. The trustee will use the money gathered in to:
- pay the costs of administering the bankruptcy;
- where a creditor petitioned for bankruptcy, pay the costs incurred in presenting the petition; and
- pay every creditor as much as possible of what is owed to them (including interest).
The amount available to make any payments will depend on the funds gathered in and there will be cases when those funds are not sufficient to pay the costs of administering the bankruptcy, nor to make any payment to creditors.