Credit Building > How does bankruptcy work in Scotland?

How does bankruptcy work in Scotland?

Wollit Team2 minute read · Updated 30th June 2024

Bankruptcy, also known as sequestration in Scotland, is a formal process where a person is declared insolvent and their assets are managed by a trustee to pay off debts. It isn’t something to be taken lightly.

This guide will walk you through the process, what it means, and how you can reduce its impact on your credit score.

Who is eligible for bankruptcy in Scotland?

To be eligible for bankruptcy in Scotland, you must meet certain conditions:

Your total debts must be at least £3,000.
You cannot have been made bankrupt in the past five years.
And you must be unable to pay your debts as they fall due.

If you have limited income and few assets, you might be eligible for the Minimal Asset Process (MAP) bankruptcy, which has different criteria:

Your total debts must be no more than £25,000.
Your total assets must be worth no more than £2,000.
You cannot have individual assets worth more than £1,000, except for a car that is reasonably needed and worth no more than £3,000.
You cannot own any land or buildings.
And you must have a valid certificate for sequestration, which is a formal document confirming your inability to pay debts.

What does the bankruptcy process look like in Scotland ?

To start the bankruptcy process:

You must live in Scotland or have lived there within the last year.
And you must submit a petition to the Accountant in Bankruptcy (AiB) or a court.

What happens during bankruptcy?

During bankruptcy, your assets are managed by a trustee, who has the goal of paying as much as possible back to your creditors.

You will no longer be responsible for paying your debts, and most of your debts will be wiped out after your bankruptcy is over.

How does bankruptcy affect my credit score?

Bankruptcy has a significant impact on your credit score. According to Experian, it can wipe out up to 350 points from your credit score. This can be enough to take your credit score from “Good” to “Very Poor”.

It will also stay on your credit file for six years, making it very hard to get approved for credit during this time.

However, you can start rebuilding your credit rating by applying for credit builder credit cards, credit builder loans, or by downloading specialised credit-building apps.

One such app is Wollit. Wollit works by reporting a fixed-fee monthly subscription as a loan repayment to all credit reference agencies. This helps you build a history of timely debt repayments, which is the main factor that matters for your credit score.

On top of this, Wollit can also report your monthly rent payment to Experian. This can add another line in your credit report that shows lenders you pay your bills on time, eventually helping you reduce the impact of a bankruptcy in your credit file.