Getting started

Your first step would be to present a petition for recall of a sequestration in the Court of Session, which your solicitor will help you with. Once you have presented your petition, the sequestration will continue as normal, however, if the trustee feels you have a good chance of the sequestration being recalled, he will avoid taking any drastic action against your assets or business.

Co-operate with your trustee

Even though this can be a frustrating time for you, remember to always co-operate with your trustee. Your trustee has the power to object to your petition. The court may not grant the recall if the trustee objects. Pay off all your debts before petitioning for a recall. Some creditors, however, will agree that your debts only be paid off after the recall. In this instance, ask your creditors to inform your trustee of this agreement.

What about debtor trading?

If you are trading around the same time you have petitioned for a recall, your trustee may allow you to continue for a fixed amount of time. This is so that the risk of trading losses is kept to a minimum.

Notification of sequestration

Even if a petition for recall has been presented, your trustee is required to place a notice of the sequestration in the Edinburgh Gazette. They must also write to the creditors informing them about the bankruptcy recall.

Payment of claims

Once you have paid your creditors in full, ask them for proof of payment to keep on record.

Advance arrangements for payments of claims

If you have enough money to pay all your creditors once you have presented the petition, the money must be paid in advance. If this does not happen, your trustee will object the petition until the fees and expenses have been paid, which will just lengthen this already long process.

Add your interest

Make sure you add the interest due on all your debts up until the date of payment. If you fail to do this, some creditors may object to the petition for recall as they will want all of their interest owed.

Other debts

Most creditors will object to the recall if you have run up more debt after you have filed for bankruptcy. Be sure to control your spending or the court may not grant your recall.

Trustee’s fees

In the majority of cases, your trustee’s fees and outlays will be paid from the funds in your estate. Even if you have not been bankrupt for a long time, your trustee could have done lots of ground work up until that point. Expect these fees to be high.

Once you sequestration has been recalled

Once your sequestration has been recalled, you will receive all your assets and property left after your creditors’ claims and the trustee’s fees have been paid.

Cancelling bankruptcy in Scotland is a long, drawn out procedure, but with the right advice, the process should be pain free. Once you have completed the process, you will no longer be insolvent and you are free to

Get legal or financial assistance. Go to a Citizens Advice Bureau, a solicitor, a qualified accountant, an authorised insolvency practitioner, a reputable financial adviser or a debt advice centre.

File your bankruptcy petition at your local county court or at the High Court in London. Creditors may also file bankruptcy proceedings against you and your refusal to acknowledge the petition will not stop it from happening. However, you may reach a settlement before the petition is heard. Doing this after the order has been made will be difficult and expensive.

Publication and court costs

The London Gazette and local or national newspapers publish all bankruptcy orders. The local authorities, utility suppliers and courts receive written notice of all these orders.

The costs of administering your bankruptcy are about £310 and the court fees are usually about £140. Those on income support might be exempted from the last cost.

The receivers and how they deal with assets and debts

Your receiver will administer your bankruptcy, liquidate the needed assets and pay your creditors. Any earnings or assets you receive after the bankruptcy order has been made will go to your creditors via the receiver. Sometimes an insolvency practitioner is appointed, and not an official receiver. The insolvency practitioner disposes of your assets, takes payment for the procedure and pays your creditors.

Bankrupts do not control their own finances; their receiver or trustee does this for them. You many only keep tools, books, vehicles or other equipment that is needed for personal use, employment or business. These items include your clothing, bedding, furniture and basic household equipment.

Your trustee is the only person with whom creditors should deal after the bankruptcy order has been made. The two exceptions are mortgage lenders and court fines: mortgage lenders may sell your property if payments are not made. You will be responsible for debts you make after the bankruptcy order has been made.

Day-to-day debts

Utility suppliers may not demand payment for bills that were unpaid at the bankruptcy order date but they may ask you to pay a deposit towards further supplies.

What are the restrictions?

1. You may not try to get credit for more than £250 without telling the creditor you are bankrupt.
2. You may not trade in a different name without telling the other parties the name in which you were made bankrupt.
3. You may not form or manage a limited company or act as a director without the permission of the court.
4. You may not be an MP, JP, school governor or the trustee of a charity or a pension fund.
5. You may not have an overdraft without informing the bank of your bankruptcy. You may also not write cheques that may be dishonoured.
6. Your trustee should know about any excess money you have in your account.

Bankruptcy was introduced to help people out of disastrous financial situations in a bid to clear their name and their conscious of the burden of debt.

Misconception #1: You will lose everything if you file for bankruptcy

This is one of the most common misconceptions regarding bankruptcy. In fact, it is the exact opposite. Filing for bankruptcy is a protection against creditors claiming your valuables, and allows you to start fresh. Under Section 283(2) of the Insolvency Act, you are allowed to keep tools of the trade, all clothing, bedding, furniture, household goods and even your car in some cases. Actually, even if the bailiffs do decide to claim your car, they are obligated to replace it with another vehicle capable of doing the same job.

Misconception #2: Bankruptcies are too long and reflects badly on your credit file for many years

In 2004 the law changed and the mandatory period required to serve under the bankruptcy order was reduced from three years to just one. In many cases, bankrupts can also be discharged from their bankruptcy in as little as 3 months. At the Official Receivers discretion, an early discharge is possible, as long as no creditor objects. Generally, the average discharge period for those granted an early discharge is 7 months.

Misconception #3: Credit black list

The existence of a ‘credit black list’ is not true. In actual fact, every time you are extended a financial facility, your repayment performance is recorded. Whenever you apply for another facility, your lender will check your profile and base his decision on whether you meet the required lending criteria. There are also a few lending institutions and banking facilities allowing discharged bankrupts facilities in order to rebuild their credit profile.

Misconception #4: Entering into a bankruptcy will destroy your credit profile for life

This is just another ploy IVA factories use to get you to apply for an IVA instead. Actually, the difference made to your credit profile by bankruptcy or an IVA is quite small. Both remains on your credit record for 6 years from the date of commencement.

It is wise to get the right advice and not listening to horror stories before deciding which option is best for you.

Bankruptcy can be an option for many people facing financial problems. But further problems could arise if you are facing a marriage break down while trying to sort out your financial affairs.

When a marriage breaks down, it is an emotional and stressful time for everyone involved, and the last thing you need is the added stress of having to deal with financial matters that need to be sorted out. Usually in a marriage, all assets accumulated during the course of the marriage are divided equally among the spouses as part of a financial settlement. But what if one of the spouse’s is bankrupt?

Recently, people facing a divorce have been warned that they risk losing their assets to meet their former spouse’s demands. In a landmark ruling by the High Court, it was stated that the protection loophole for spouses to enjoy their share of assets ordered on a divorce has been closed. In other words, if one of the spouse’s goes bankrupt during a divorce, the other will be exposed to creditors as well. And bankruptcy trustees will be able to pursue the non bankrupt spouse for up to five years.

So what can you do if you find yourself in this unfortunate position? The best option you have would be to sort out all financial issues before the bankruptcy takes effect. If you know you are planning a divorce, you can take steps to ensure the bankruptcy does not affect you. Bankruptcy is usually threatened quite some time before any action is taken, so an application to the family court to settle any financial issues should be made before the bankruptcy takes effect. The Trustee in Bankruptcy may be able to help you. Certain parts of your financial settlement could be put aside, which may minimise the effect of bankruptcy on the non bankrupt spouse.

But what if bankruptcy is already in place? If the bankrupt is not yet insolvent, the spouse may still be able to apply for bankruptcy annulment from the court. In some instances the family court may order the bankrupt to pay a lump sum or maintenance if the bankrupt has a relatively good income despite being insolvent.

In some cases, however, bankruptcy can work in the non bankrupt’s favour. Until just recently, a person who owed money as part of a divorce settlement could apply to make their former spouse bankrupt, but could not have the debt proved in that bankruptcy. However, the money paid by the bankrupt is part of the bankruptcy and the bankrupt is not released from these debts until the bankruptcy has ended.

Bankruptcy will always have serious implications for the financial settlement on divorce. You should be sure to seek the best legal advice you need where both bankruptcy and divorce are concerned. This will ensure you get the best financial settlement so both you and your former spouse can enjoy a financially sound future.

Here are Harrington Brooks’s top ten tips on surviving the recovery.

1. Protect yourself against losing your job.
You should consider taking out some kind of redundancy protection. Unemployment has fallen a little but it’s smart to take out insurance against losing your job while you still have one.

2. Be prepared for a pay freeze.
Pay freezes are set to become more common and it’s likely to be down to firms controlling costs by freezing your pay. For a lot of people, the recovery is going to feel just like the recession.

3. Try to fix your mortgages while rates are low.
Avoid the rising interest rates by entering into a fixed rate deal in the next few months. However, the good news is that the number of mortgage deals will continue to increase.

4. Keep a close eye on your credit card limit.
Credit card companies are beginning to authorise higher credit limits, without actually asking their customers first. Although this may seem a great deal for if you’re struggling to pay bills, you’re just saving up the debt for later.

5. You shouldn’t bank on a rise in house prices.
Strangely, house prices ended up higher at the end of 2009 than at the start. However, the average house price in the UK is £169,000 and according to Halifax, it’s unlikely to climb much higher. Rising mortgage rates and growing unemployment will make it hard for many to move home.

6. Get advice about tax.
Tax can only go up. Some suggest that VAT could rise to 20 per cent after the election. Protect yourself by getting a good tax advisor.

7. Avoid tying your savings up for too long.
People who are heavily dependent on their savings should be careful about tying up their money for too long. What seems a great deal now, may not look so good in a few years.

8. Pay the maximum amount into your pension.
Since inflation eats into your savings, a set some of money will get you less at the end of the year than it did at the start. However, pensions tend track inflation because they invest in Government bonds.

9. Be sure to budget for an increase in household bills.
A fixed deal from your energy company might look more expensive now but will prove good value if tariffs climb. Wholesale energy markets will rise in line with an increased demand. So, your utility bills are likely to climb too.

10. Clear your existing debts now.

Freeing yourself from the burden of bad debt as quickly as possible will hopefully allow you to avoid rocketing rates of interest. Talk to a dedicated debt advisor about the best debt solution to suit your circumstances. Visit www.harringtonbrooks.co.uk and take the free, no obligation debt test to find out your best option.