Bankruptcy laws in Scotland changed in April 2008 so consumers could more easily get out from under their debt. Prior to the change, consumers had to wait for their creditors to take legal action before they could become bankrupt. Now consumers can self-declare bankruptcy in Scotland.
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Requirements for Bankruptcy
Under the Scottish bankruptcy law, you can self-declare bankruptcy as long as you owe at least £1,500 in debt, have lived in the country at some point during the previous year and have not been bankrupt in the last five years. Also, you must pay an application fee of £100 and are insolvent, meaning you cannot pay your bills when they are due. You will need proof from your creditors for the latter requirement.
Dealing with Assets
Under the bankruptcy laws in Scotland, you must turn over your assets to the trustee, who will sell them and use the funds to pay your creditors. However, you can keep some items. You can keep personal belongings, such as furniture and clothing. Also, if you have items needed for your work, you can keep those as long as they are valued at under £1,000. If you own a home, the trustee may sell it to pay off your creditors.
Income Payment Agreement
Because you are expected to pay some money back to your creditors, the trustee will examine your income and expenses to determine if you need to pay an additional sum each month. You and the trustee will reach a decision about how much you can afford to pay in a written Income Payment Agreement. You must pay this amount for three years, but your financial situation will be reviewed by the trustee every six months, so the amount paid could increase or decrease. If you fail to make your payments, the trustee can secure an Income Payment Order and have the funds taken directly from your earnings.
Being Made Bankrupt
Although the Scottish bankruptcy laws have changed, creditors can still make debtors bankrupt. However, you must owe at least £3,000 to that creditor first. The creditor must also show that you are insolvent. If this happens, you have no choice but to cooperate with the proceedings and to alert the trustee if anything changes with your finances.
Other Changes in 2008
The changes in Scotland bankruptcy law after April 2008 also included no longer allowing student loans to be included in bankruptcy, permitting the trustee to impose behaviour regulations on debtors they believe have behaved badly (such as hiding assets or trying to transfer them before the proceedings) for up to 15 years, and reducing the time for bankruptcy discharge from three years to only one. However, debtors must continue meeting their IPA requirements for the full three years, even following the discharge.
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