Bankruptcy process

Bankruptcy (also called sequestration in Scotland) is a form of insolvency which can apply to an individual or a sole trader business (but not to other forms of business such as limited companies or partnerships). It releases the person going bankrupt from their outstanding debts. However, the state of bankruptcy normally lasts for a year and has various detrimental effects during this period of time and beyond.

Bankruptcy can either be applied for by the person who wishes to declare themselves bankrupt - or it can be sought by a creditor in an attempt to collect any money owed.

Before deciding to apply for bankruptcy, it is important to consider the pros and cons of doing so. The overall process of going bankrupt consists of the following stages in England and Wales:

  1. Apply for bankruptcy
  2. Wait for the adjudicator's decision to either make a bankruptcy order or reject the application - this generally takes 28 days but can be extended by 14 days if they require more information
  3. If a bankruptcy application is rejected by the adjudicator, consider asking for a review and lodging an appeal - you can request an appeal by submitting a form that complies with Rule 10.44 to your local court that deals with bankruptcy. You can use the Gov.uk's template Form 10.44 bankruptcy application to appeal against an Adjudicator’s decision to refuse to make a bankruptcy order.
  4. If the application is accepted and a bankruptcy order is made, banks or building society accounts belonging to the bankrupt are frozen
  5. Cooperate with the official receiver - an interview will normally take place over the phone
  6. Open a new 'basic' bank account - some banks will not offer any type of account to a bankrupt
  7. Discharge from bankruptcy (generally after 12 months from the date of the bankruptcy order)

Before applying for bankruptcy, you should first consider alternative ways of dealing with debts. Apply for bankruptcy online using the Gov.uk service, if you are in England and Wales. In Scotland, you apply to the AiB. Information about income, outgoings and debts will be required to be submitted as part of the application (eg information contained in wage slips, benefits statements, utility bills and letters from a bailiff etc).

In England and Wales, once an application has been submitted, it will be considered by the adjudicator (who works for the Insolvency Service). The adjudicator will generally inform the applicant of their decision within 28 days - if the application is successful a bankruptcy order will be issued.

In Scotland, the AiB will review your application. This is usually done within 5 days of the AiB receiving your application. If your application is successful, bankruptcy will usually be awarded within 5 days.

Currently it costs £680 to apply for bankruptcy. Check the Gov.uk website for the latest fees. 

In Scotland it costs £200 to apply for bankruptcy through the full administration route, or £90 to apply for bankruptcy through the minimal asset process route. Check the AiB website for the latest fees.

A bankruptcy application cannot be submitted until the fee has been paid in full. It can be paid in instalments - and it is sometimes possible to apply for a grant.

Once a bankruptcy order is made, the bankrupt's money and property will come under the control of the official receiver (also known as the ‘trustee’ in Scotland). They will contact the bankrupt and arrange for an interview (normally over the phone) to discuss the bankruptcy - this should take place within 10 working days of the bankruptcy order being made.

The official receiver is in charge of the administration of the bankruptcy; they will distribute any remaining assets to creditors and deal with the bankruptcy trustee if required. Other duties of the official receiver include:

  • Investigating the conduct and financial affairs of the bankrupt
  • Advertising the bankruptcy in the London Gazette (for bankruptcies in England and Wales) and in the Edinburgh Gazette (for bankruptcies in Scotland)
  • Informing all the creditors of the bankruptcy
  • Sometimes acting as the bankruptcy trustee

Normally after 12 months of a bankruptcy order being made, the bankrupt will be discharged from bankruptcy. If you were made bankrupt via the Minimal Asset Process in Scotland, you will usually be discharged from bankruptcy after 6 months. This essentially releases them from most debts and restrictions (subject to a bankruptcy restrictions order or bankruptcy restrictions undertaking).

Discharge from bankruptcy happens automatically. It is possible to find the discharge date on the Individual Insolvency Register (for England and Wales), on the Register of Insolvencies (for Scotland), or to email the Insolvency Service and ask for a confirmation letter. A Certificate of Discharge will be required for mortgage applications and, in England and Wales, this is available free from the Insolvency Service (in respect of online applications) - or from the court (if the bankruptcy application was made to the court) for a fee of £70 (and £10 for extra copies). In Scotland, you can request a Certificate of Discharge from the AiB.

It is necessary to apply to Land Charges and HM Land Registry to remove a bankruptcy entry in respect of properties - see Gov.uk for more information on how to apply.

During bankruptcy, if the bankrupt does not fully cooperate with the official receiver or trustee, the court may suspend the discharge, so it can be delayed beyond 12 months.

Any income payments agreements or income payments orders will continue beyond the discharge date. In Scotland these orders are known as a Debtor Contribution Order (DOC) and last for 48 months after discharge from bankruptcy. Any personal belongings which were confiscated upon bankruptcy but have not been sold will remain in the bankruptcy estate - but a family home (ie where the bankrupt and/or current or former spouse/civil partner reside) which has not been sold within three years of the bankruptcy order may be returned to the bankrupt.

For further information about what happens when bankruptcy ends, see the Gov.uk website, for England and Wales, and the Gov.scot website, for Scotland.

The overall process of going bankrupt consists of the following stages in Scotland:

  1. Check that you qualify to apply for bankruptcy. To be able to apply for bankruptcy you must have:
    • Debts over £1,500
    • Lived in Scotland for the last year or currently live in Scotland
    • Not been sequestrated in the last 5 years
  2. Check that you meet the conditions of one of the three bankruptcy routes:
    • The Minimal Asset Process conditions - especially if you are on a low income or get benefits, and your debts are less than £17,000
    • You are "apparently insolvent" by either having granted a trust deed, or received a charge for payment or statutory demand and haven't paid the money owed over the required period
    • You have been given a formal 'certificate for sequestration' by an approved person (this can be a money adviser)
  3. Contact a Money Advisor - this is required, and should help you determine if bankruptcy is the best option for you
  4. Once it has been confirmed that bankruptcy is your best option, you will be issued a Certificate for Sequestration. You cannot make a claim for bankruptcy without this Certificate
  5. Complete your Debtor Application Pack and, where necessary, Moratorium - both can be found on the Accountant in Bankruptcy (AiB) website
  6. Submit the completed forms, along with the respective fee, to the AiB - once received, this is generally processed within 5 days
  7. If your application is accepted, you will officially be declared bankrupt and listed on the Register of Insolvencies
  8. Discharge from bankruptcy (generally after 12 months from the date of the bankruptcy order)