What is Bankruptcy?
Bankruptcy is a formal method of dealing with debts if other options have failed or are inappropriate. The consequences of bankruptcy are severe.
Bankruptcy starts when someone in debt (a debtor) is declared bankrupt by the sheriff or the Accountant in Bankruptcy.
The person who administers a bankruptcy is called the trustee. They can be either the Accountant in Bankruptcy or an insolvency practitioner. If a debtor is declared bankrupt, it means that their trustee has the legal authority to take action to recover funds from any assets a debtor owns, including their home.
A debtor will be able to keep some things that are essential for everyday living, however they may be required to make some payment from their income.
All assets, including property, will be investigated by the trustee and where necessary sold in order to:
- pay the costs of managing the bankruptcy; and
- pay creditors as much as possible of what the debtor owes them
Subject to certain conditions, a creditor can apply to a sheriff to make a debtor bankrupt or a debtor can apply to Accountant in Bankruptcy to make themselves bankrupt.
In Scotland bankruptcy is sometimes called sequestration.