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Debtor Guide - Bankruptcy

This guide provides general advice on bankruptcy for people who have been made bankrupt

What happens to the things I own?

Control of your assets (the things that you own) passes to your trustee when you are made bankrupt. They may sell them to pay the costs of managing your bankruptcy and your debts.

What are assets?

Assets could be:  

  • money
  • savings
  • business debts
  • property or land
  • vehicles
  • life policies
  • jewellery
  • shares
  • compensation payments

You will normally be allowed to keep items you need for day-to-day living, such as clothes, furniture, household linens, floor covering, anything used for cooking or cleaning, educational items, and children’s toys. 

You can also keep any tools you need for your trade, up to a value of £1000.

You may be able to keep a vehicle reasonably required by you that has a value of no more than £3000.

For a period of four years you must tell your trustee about any new assets you obtain, for example, property or an inheritance.

If your trustee thinks you have sold, given away or disposed of any asset within the five years before your bankruptcy for less than their value, they can ask the sheriff to have the transaction reversed and the asset returned.

What happens to my home?

What happens to your home will depend on various things, such as whether you own, or live with family or friends.

If you do own a property, either on your own or with somebody else, it is in your best interest to obtain independent legal advice as soon as possible.

Even after you are discharged from your bankruptcy, your trustee may continue to deal with your property.

What if I own my home?

If you own your home, or any other property, control will transfer to your trustee along with your other assets. They should discuss with you what they are going to do within one year of your bankruptcy.   

Your trustee will consider the value, whether you have any loans secured on it and if there are children or other dependants living in the property.

It could be sold, or your spouse, partner or family member could buy out the trustee’s interest in it. If your trustee decides to sell it may be sold on the open market or privately and they must obtain the best price possible. You are not allowed to sell or negotiate any further loans secured against any property you own.

If your trustee decides they do not intend to sell your house they will formally abandon their interest in it. Only then are you entitled to sell it or negotiate further loans.

What if I used to own a home?

If you used to own all or part of a home (or any other property) and sold it or gave it to your spouse, partner or to anyone else, your trustee will check you sold it for full value. Your trustee will also ask you to explain what happened to any money you received for the property.

If you have disposed of your home or tried to hide any proceeds from a sale, you may have committed a criminal offence under the Bankruptcy (Scotland) Act 2016. Your trustee may report you to the Procurator Fiscal and, apply for the transfer of the property back into your name.

What if my property is jointly owned by me and someone else?

If you own your home jointly with your spouse, partner, or someone else, your trustee will discuss options with the joint owner if their proposed action requires them to do so. Co-operation of the joint owner(s) will minimise the stress and costs of dealing with your share of the home.

Your trustee can agree to the joint owner(s) buying out their interest in the home. This can be in a lump sum payment, by instalments or through a re-mortgage package. Your trustee and the joint owner(s) will each be responsible for their own legal expenses.

Where the home or property is jointly owned, the joint owner cannot sell without the permission of your trustee.

What happens if I cannot pay my mortgage?

If you have a loan(s) secured on your house and you do not continue to payments, your secured lender can repossess the house. Your trustee is powerless to stop the repossession of the property. If your house is repossessed and is sold by the lender, any proceeds left after your loan(s) is paid will be transferred to your trustee. If there is a shortfall with the sale this may be included in your bankruptcy.

What if I rent my home?

If you rent your home, your trustee normally has no interest in the house provided you can show proof it is rented. However, you may have to move if your trustee thinks you are paying too much rent. They can apply to the sheriff to set a limit on how much rent you should pay, to allow you to pay a contribution towards the costs of your bankruptcy and payment of your debts.

If you have rent arrears, your landlord should not take any action to collect them once you have been made bankrupt. They can, however, act and seek your eviction if you fail to pay your rent after the date of your bankruptcy.

What happens to my policies?

Your trustee will need to know about any policies you have as they may be assets in your bankruptcy. Some policies only pay out on death, some pay out either on death or on a predetermined date or circumstance. Your trustee will register their interest which means if they have a surrender value it may be cashed in, or in the event of they become payable, during the four years after the date of your bankruptcy, the funds may be paid to your trustee.

If the policy has been formally assigned to your bank or building society to pay off all or some of your secured loan(s), what happens to this policy will depend on what happens with your house.

What happens to items on hire purchase?

These items often remain the property of the company which supplied the finance for their purchase. They may be taken away and sold by that company.

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