When is a bankruptcy awarded?
Bankruptcy is awarded either following a debtor's application to the Accountant in Bankruptcy or following a petition to the sheriff court by a creditor (or in certain circumstances by the trustee in a trust deed).
When a debtor applies for their bankruptcy with a correctly filled in application form and the fee is paid, bankruptcy will normally be awarded within five working days of the Accountant in Bankruptcy receiving it.
It may take longer if the Accountant in Bankruptcy has to write to the debtor to ask for more information or evidence.
When a creditor or a trustee in a trust deed petitions the sheriff for bankruptcy, a debtor could be made bankrupt in less than a fortnight from the date their petition is presented.
The debtor will receive a warrant citing them to appear at a court hearing to decide whether they should be made bankrupt.
If a debtor appears or are represented at the hearing and provide evidence, the sheriff may decide to postpone their decision if they are satisfied that the debtor will pay what they owe within six weeks or if t
hey plan to repay their debts through the Debt Arrangement Scheme.
What is the money adviser's role?
A money adviser will provide you with the information you need to make an informed decision about whether applying for bankruptcy is right for you.
To apply for your own bankruptcy you must have had money advice from a qualified money adviser or an approved insolvency practitioner.
There is a form in the Debtor Application Pack which your money adviser or insolvency practioner must sign to confirm they have given you money advice. You cannot submit an application for bankruptcy without this declaration being signed.
A money adviser or insolvency practitioner must assess your income and expenditure in order to find out if you have available surplus income to make payments towards your debts. If you are in employment or receive other income (excluding benefit only income) you will be required to pay any surplus income towards your bankruptcy. Payments will last for 48 months or the equivalent weekly period unless your circumstances change.
A money adviser will be able to assist you to fill out a debtor application form to apply for bankruptcy. This can be done by applying online or by completing a hard copy application and sending this to AiB. You must pay the full bankruptcy application £200 fee before your application will be processed. If you are applying through the minimal asset process this fee will be £90.
When does bankruptcy start?
Bankruptcy does not start until an award of bankruptcy has been made.
The start date depends on whether the debtor applied for their own bankruptcy or a creditor presented a petition to the sheriff court.
If a debtor applied for their own bankruptcy, the start date is the date The Accountant in Bankruptcy awarded bankruptcy.
What is the trustee's role?
A trustee is the person who administers a bankruptcy. The trustee can be either The Accountant in Bankruptcy or a private insolvency practitioner (normally a chartered accountant who specialises in personal bankruptcy).
The trustee will gather together the debtor's assets, including any property, and sell them to pay the costs of managing their bankruptcy and to pay their debts.
They will contact the debtor for information about their finances which will include information about their assets, who their creditors are, their income and what their weekly outgoings are. The trustee is also entitled to ask the debtor to provide evidence such as wage slips, bills and bank statements.
The trustee may also want to interview the debtor at home, visit their business premises or ask the debtor to attend a meeting at the trustee's office.
A debtor must always co-operate with their trustee. Failure to co-operate can result in the bankruptcy lasting longer and restrictions being placed on the debtor. Debtors who fail to co-operate with their trustee may be committing a criminal offence and could be fined, sent to prison or both.
The trustee may call meetings of creditors. Where an insolvency practicioner is trustee the creditors can elect commissioners to oversee the administration of the bankruptcy at any meeting.
There will be a charge for the work the trustee does.
Trustees are required to produce accounts at the end of the first year and periodically thereafter until they are discharged. They have their accounts approved by the Accountant in Bankruptcy or elected commissioners.
What is a sederunt book?
The trustee will compile a permanent record of the bankruptcy. This is called the sederunt book and contains copies of court orders, accounts and records of meetings but not general correspondence. During the bankruptcy period, the debtor and creditors can ask to inspect the sederunt book and the trustee should arrange a suitable time for this.
What are a debtor's responsiblities?
It is important a debtor understands their responsibilities during bankruptcy. These are some of the things a debtor must and must not do:
A debtor must:
- co-operate fully with their trustee at all times; and
- keep their trustee informed of any changes in their circumstances, such as change of address or financial circumstances.
A debtor must not:
- get credit of £2,000 or more from any lender or supplier without telling them that they are bankrupt. A debtor may be guilty of a criminal offence if they do not inform a lender or supplier of this
- get any credit for goods or services without telling the lender or supplier that they are bankrupt if they already have credit of £1,000 in total
- start up a limited company or be involved in the day-to-day management of a limited company
- act as a Member of Parliament, as a member of any local council, a Justice of the Peace or a member of a school board
This is not a complete list of the debtors responsibilities. The trustee will explain to the debtor exactly what is expected of them.
If a debtor does not comply with their responsibilities, they may be committing an offence under either the Bankruptcy (Scotland) Act 1985 (as amended) or the Bankruptcy (Scotland) Act 2016) and the trustee may report them to the procurator fiscal.
How is the creditor involved?
Within 60 days of an award of bankruptcy, the trustee has to decide whether or not to call a statutory meeting of creditors. If a meeting is held, the creditors present can vote to replace the trustee. If the trustee decides not to call a meeting, creditors can request one and the trustee is obliged to call the meeting if not less than a quarter in value of the creditors (based on the total debt owed) request it.
Other meetings can be called by creditors at any time. A meeting must be held if called by one tenth in number or one third in value (based on the debt owed) of the creditors. A meeting of creditors can issue directions to a trustee but the trustee and other creditors have the right to appeal to the sheriff.
At any meeting of creditors commissioners can be elected.
Commissioners can be elected to generally advise and supervise the administration of the bankruptcy including auditing the trustee's accounts. Commissioners are creditors or their mandated representatives and can be elected at a meeting of creditors. If no commissioners are elected, The Accountant in Bankruptcy performs this function.
Trustees are required to produce accounts at the end of the first year and periodically thereafter until the end of the bankruptcy. Accounts have to be audited by the Accountant in Bankruptcy or elected commissioners. Creditors will be sent copies of a determination of the trustee's outgoings and remuneration. Creditors can ask to see the accounts and can appeal against the determination.
Who pays the cost of the bankruptcy?
When there are funds ingathered from the bankruptcy, the costs of administering the case, including fees and remunerations of the trustee, will be met from funds accumulated from the sale of the debtor's assets and contributions the debtor has made from their income.
When there are no funds ingathered from the bankruptcy when the Accountant in Bankruptcy is the trustee, costs that cannot be met by selling of assets or from contributions will be met from the public purse.
The public purse will not make any payment towards the debts owed to creditors.
When an insolvency practitioner is the trustee, costs that cannot be met by selling assets or from contributions will be met by the trustee themselves. The insolvency practitioner will consider this before agreeing to act as trustee in the bankruptcy.
How long will a bankruptcy last?
If a debtor applies for their own bankruptcy, they will normally be discharged one year after the date the bankruptcy was awarded. If you were awarded bankruptcy via the minimal asset process route, you will be discharged after six months. If a creditor petitioned for the bankruptcy, discharge will be one year after the date the court issued the warrant citing the debtor to appear at a hearing. However, if you do not co-operate with your trustee, your discharge could be deferred indefinitely.
The debtor will be notified of their discharge and will be provided with a discharge certificate free of charge.
Even though a debtor has been discharged, the bankruptcy will not be finished until the trustee has done everything they need to, and they are discharged from their duties. The debtor must co-operate with the trustee until the trustee is discharged.
The debtor will be notified of the trustee's application for discharge.
Can a bankruptcy end sooner than this?
There is one way in which a bankruptcy can end sooner. This is recall, please see the recall of bankruptcy section for more details.
Recall of bankruptcy
A debtor, any creditor, a trustee or any other person having an interest can apply to The Accountant in Bankruptcy for recall, but only on the grounds that the debtor has paid or is able to pay their debts in full, the trustee’s fees and outlays.
A debtor must petition the sheriff to recall a bankruptcy in all other situations, for example, if it can be shown that the bankruptcy should not have been awarded in the first place. The creditor who petitioned for bankruptcy can also ask the sheriff for recall if they have petitioned in error (i.e. the debtor was not apparently insolvent). If a creditor petitions, they will be liable for the trustee's fees and the costs of the recall. Creditors can object to the recall.
The law says that until recall is granted the trustee must continue to administer the bankruptcy.
Recall effectively restores the debtor to the position they would have been in had the bankruptcy not happened. However, if a Bankruptcy Restrictions Order was granted prior to any recall this will remain in place unless The Accountant in Bankruptcy or the sheriff agrees to annul it. Please see Bankruptcy Restrictions page for more details.