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Bankruptcy, known legally as sequestration in Scotland, is often misunderstood. Many people considering this step are unsure what it means for their debts, their assets, and their future. Our insolvency team regularly receives questions from individuals worried about the implications of bankruptcy, and there’s no shortage of myths surrounding the process.
To help clarify the facts, we’ve addressed some of the most common misconceptions about bankruptcy in Scotland below.
Questions and Answers
What’s the difference between sequestration and bankruptcy?
In Scotland, “sequestration” is simply the legal term for bankruptcy.
They refer to the same process: a formal insolvency procedure for individuals who cannot pay their debts.
Do I have to owe thousands to go bankrupt?
In Scotland, you can apply for bankruptcy if you owe just £1,500 and meet certain conditions.
Does bankruptcy wipe all debts automatically?
Some debts aren’t discharged, like court fines, student loans, and child maintenance.
Will I automatically lose my house in bankruptcy?
Not always. The trustee will assess equity.
You might keep the house depending on your circumstances (e.g. low equity, family needs).
Am I allowed to work or earn money during bankruptcy ?
You can work and earn, but you may need to make a contribution from your income if it’s above a certain level.
Does bankruptcy lasts for life ?
Typically, bankruptcy in Scotland lasts 1 year, though payments to creditors (DCOs) may last up to 4 years.
Do I have to tell anyone about my bankruptcy?
Bankruptcy is publicly recorded on the Register of Insolvencies, and you must disclose it if applying for credit, or in regulated professions.
Can I hide personal assets by transferring them?
Trustees can investigate asset transfers, especially those made at undervalue or to connected parties. These can be reversed by court order.
Does bankruptcy only affect my personal life, not my role as a director?
If you’re made bankrupt, you’re automatically disqualified from acting as a company director or forming/managing a company without court permission.
Bankruptcy can feel like a daunting step, but understanding the process is key to making informed financial decisions. It’s not a life sentence, nor does it mean losing everything, but it does carry serious legal and financial consequences. If you’re considering bankruptcy, speaking with a qualified insolvency professional can help you weigh your options and choose the best path forward for your situation.