Going Bankrupt in Scotland? How It Works (2025)

Bankruptcy in Scotland Is Called Sequestration

If you live in Scotland and are struggling with unmanageable debt, the term "bankruptcy" refers to a formal insolvency process known in Scottish law as sequestration. While the outcome — writing off debts you cannot repay — is broadly similar to bankruptcy in England and Wales, the legal framework, the body that oversees it, and the eligibility rules are distinct. Understanding these differences matters before taking any formal step.

Sequestration in Scotland is administered by the Accountant in Bankruptcy (AiB), a Scottish Government agency. Applications can be made directly to the AiB online. According to the AiB, sequestration is designed for people who are apparently insolvent — meaning they owe more than they can repay or have had a formal demand issued against them that they cannot meet.

Who Can Apply for Sequestration in Scotland?

To apply for sequestration, you must meet specific eligibility criteria set out in the Bankruptcy (Scotland) Act 2016. Key requirements include:

• You must be resident in Scotland, or have been resident or carrying on business there within the last year
• You must owe at least £3,000 in total debt
• You must be apparently insolvent — for example, a creditor has served a formal charge for payment that you have not met, or you have signed a declaration that you are unable to pay your debts
• You must not have been sequestrated in the previous five years (with some exceptions)

There is also a route called a debtor application, where you apply yourself rather than having a creditor petition the court. This is the most common route for individuals. Alternatively, a creditor owed at least £3,000 can petition the Sheriff Court to sequestrate you. Both routes lead to the same formal outcome.

What Does the Application Process Involve?

The Application Fee

Applying for sequestration directly through the AiB costs £200. This is payable at the time of application. In limited circumstances, the fee may be waived — for example, if the applicant is in receipt of certain benefits or has no assets — but this is assessed case by case. By contrast, applying for bankruptcy in England and Wales through the Insolvency Service costs £680, so the Scottish route is considerably cheaper for those who qualify.

The application is submitted via the AiB's online portal. Once accepted, a trustee is appointed to manage the process. The trustee may be the AiB itself (acting as trustee) or an insolvency practitioner from the private sector, depending on the circumstances of the case.

What the Trustee Does

Once sequestration is awarded, the appointed trustee takes control of your assets and investigates your financial affairs. The trustee's role is to realise (sell) assets for the benefit of creditors and to distribute any funds recovered. They will review your income, expenditure, property, and any assets of value.

During sequestration, creditors are legally prevented from taking further individual action against you to recover the debts included in the sequestration. Interest on most debts also stops accruing from the date sequestration is awarded.

How Long Does Sequestration Last?

The standard discharge period in Scotland is 12 months from the date sequestration is awarded. This means that after one year, you are automatically discharged from most of the debts included in the sequestration, and creditors can no longer pursue you for those amounts. This mirrors the 12-month discharge period for bankruptcy in England and Wales.

However, discharge does not end all obligations. If you have surplus income — earnings above what you and your family reasonably need — the trustee can require you to make contributions through an Income Payment Agreement (IPA) or an Income Payment Order for up to 48 months (four years) from the date of sequestration. This is an important distinction: discharge from the debts themselves and the end of income contributions are two separate events.

What Happens to Your Assets in Sequestration?

Your Home

If you own property in Scotland, sequestration can affect your home. The trustee has three years from the date of sequestration to deal with any interest you hold in a property. If no action is taken within that period, the interest in your home reverts to you. However, if there is equity in the property, the trustee may seek to realise that equity — either by requiring you to buy out the trustee's interest, by selling the property, or through another arrangement.

If the property is in negative equity or has very little equity, the trustee is less likely to take action, but this is assessed individually. Anyone sharing a property — for example, a partner or spouse — may also be affected, and taking separate regulated advice on this specific point is important before applying.

Other Assets

Most assets you own at the date of sequestration vest in the trustee. Certain items are protected, including:

• Tools, books, or equipment you need for work (up to a reasonable value)
• Clothing and basic household furnishings reasonably needed by you and your family
• A vehicle worth up to £3,000 if you need it for work
• Funds in certain pension schemes — pensions are generally protected from sequestration in Scotland

Assets acquired after the date of sequestration but before discharge — known as after-acquired property — may also vest in the trustee, depending on the circumstances. The trustee must be notified of any significant assets or windfalls received during the sequestration period.

Sequestration vs. Other Scottish Debt Solutions

Sequestration is not the only formal debt solution available to people in Scotland. Depending on the level of debt and individual circumstances, other options may be relevant under Scots law:

• Debt Arrangement Scheme (DAS) — a government-backed programme allowing repayment of debt in full over an extended period, with interest and charges frozen. Creditors cannot take further action while a DAS is in place. No assets are at risk.
• Protected Trust Deed — a formal arrangement between a debtor and creditors, similar in some respects to an IVA in England and Wales. Typically lasts four years, after which remaining debt is written off. Minimum debt thresholds and contributions apply.
• Minimal Assets Process (MAP) bankruptcy — a streamlined route into sequestration for people with very low income and minimal assets. The application fee is lower (currently £50), but strict eligibility criteria apply, including a total debt cap of £25,000 and a requirement that the applicant has not been in MAP bankruptcy in the previous six years.

Each of these solutions has different implications for assets, credit record, and length of commitment. A regulated debt adviser can explain how each applies to a specific set of circumstances — the descriptions above are general in nature.

The Effect of Sequestration on Credit and Employment

Sequestration will appear on your credit file for six years from the date it is awarded. During this period, obtaining mainstream credit is significantly more difficult, and any credit offered is likely to carry much higher interest rates. The sequestration is also recorded on the Register of Insolvencies, which is a public register maintained by the AiB.

There are also restrictions on what you can do while sequestrated. These include being unable to act as a company director, restrictions on holding certain professional licences, and being unable to obtain credit of more than £500 without disclosing that you are sequestrated. Some employment contracts — particularly in financial services or legal professions — may be affected, and checking any relevant terms before applying is advisable.

After discharge, most of these restrictions lift. However, the credit file entry remains for the full six-year period regardless of when discharge occurs.

Where to Find Free Debt Advice in Scotland

Formal debt solutions such as sequestration, Protected Trust Deeds, and the Debt Arrangement Scheme have significant and long-lasting consequences. Free, impartial advice is available from regulated organisations that can assess individual circumstances without obligation:

• MoneyHelper — free guidance service backed by the UK government (moneyhelper.org.uk)
• StepChange Debt Charity — free debt advice and assistance with formal solutions across Scotland
• Citizens Advice Scotland — local bureaux across Scotland offering free advice on debt, including sequestration
• National Debtline — free telephone and online advice, including Scotland-specific guidance

These organisations provide free debt advice and are not debt solution providers. Engaging with them carries no cost and no obligation.