Overview

Bankruptcy (also known as sequestration in Scotland) is the legal process by which you are formally declared insolvent. This means you can't pay your debts as they become due.

To be made bankrupt, a sheriff court has to issue a bankruptcy petition against you. This can happen for two reasons:

• you can apply to the court if you're unable to pay your debts
• your creditors apply to make you bankrupt if you owe them £3,000 or more

Your creditors must send you a copy of the Debt Advice and Information Package.

Before issuing a bankruptcy order, your creditors must have issued you with a 'charge for payment' or a 'statutory demand' and the time limit for you to reply must have elapsed.

For a 'charge for payment' the time limit to reply is 14 days and for a 'statutory demand', 21 days.

When you're made bankrupt:

• your assets can be used to pay your debts
• you must follow certain rules called the 'bankruptcy restrictions'
• your name and details will be published on a bankruptcy register called the Register of Insolvencies

After 12 months you're usually discharged (freed) from your bankruptcy. If you're making a contribution to a trustee, you must continue to pay it after you've been discharged.

Download Debtline's advice factsheets about bankruptcy or contact National Debtline Scotland for bankruptcy advice. Bankruptcy only applies to individuals. Limited companies that can't pay their creditors are 'insolvent' and can face compulsory liquidation.