Debtor discharge

• Introduction
• Automatic discharge
• Deferment of discharge
• Certificate of discharge
• The effect of discharge on you
• The effect of discharge on your assets
• Other effects of discharge
• The sequestration continues
• Discharge of the permanent trustee
• Further information

Introduction

This booklet is for the information of debtors who have been sequestrated and explainsthe effect of being discharged from bankruptcy. The notes in square brackets (for example [section 54(1)]) refer to sections of the Bankruptcy (Scotland) Act 1985.

Automatic discharge

Unless an application is made for deferment, a sequestration lasts for 3 years.

• If you petitioned for your own sequestration, you will be discharged 3 years after the date it was awarded.
• If a creditor petitioned, you will be discharged 3 years after the date on which you were first cited to appear before the court [section 54(1)].

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Deferment of discharge

Discharge is normally automatic but your permanent trustee or any creditor may apply to the court for discharge to be deferred [section 54(3)]. This must be made at least 3 months before the date of automatic discharge and you will receive notice of the application and of your right to object to the deferment. If you wish to object you should consider taking legal advice.

An application for deferment usually happens if you have been unco-operative (for example, if you agreed or were ordered to make a contribution from earnings but failed to do so).

The sheriff may refuse an application for deferment of discharge or may grant the deferment for up to 2 years at a time. Repeated applications may be made, always 3months before the new date for discharge, and on each occasion you have the right to object to a further deferment.

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Certificate of discharge

Whenever you are discharged, whether automatically after 3 years or following a period of deferment, you will not be formally notified, but you can ask us for a certificate of discharge [section 54(2)]. There is a charge (£8 at the moment) for this and payment must be made in advance. You can apply for a certificate of discharge at any time after your date of discharge but not before. It is best to phone us about how much it costs before you apply, as sending the wrong amount will lead to delay.

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The effect of discharge on you

If there are no assets left to be realised, discharge means you no longer have any personal duty to repay those debts which you had at the date of your sequestration and the creditors you owed those debts to will not be able to take any legal action to recover them [section 55(1)] (see also part 14 below). But you are still responsible for paying any debt owing to a secured creditor, for example, the mortgage on your house(but see paragraphs 9-11 below) [section 55(3)].

You are also responsible for repaying any debts which you have run up after the date of your sequestration, for example, ongoing liabilities for rent, council tax, gas, electricity, telephone.

There are a few other exceptions. You are not discharged from liability to repay any of the following types of debt (even if they were outstanding when you were sequestrated) [section 55(2)]:

1. fines, penalties, compensation and forfeiture orders imposed by any court;
2. any liability incurred as a result of fraud or breach of trust on your part;
3. any liability to forfeiture of bail; or
4. any sums due under a Social Fund loan.

Also you are not discharged of any obligation to pay aliment or child support maintenance, or any periodical payment ordered by the court to your ex-spouse if you are divorced. You are discharged from any unpaid arrears at the date of sequestration but not from sums due after the date of sequestration. Similarly, you are not discharged of any liability to repay any sums paid or due to be paid under a student loan after the date of sequestration. Again you will, however, be discharged from any unpaid arrears due as at the date of sequestration.

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The effect of discharge on your assets

Being discharged from bankruptcy does not end the sequestration itself. Nor does it mean that you get your assets or property back. If you are making a contribution, that will stop, but any life insurance, endowment or personal pension policies or the like remain in the hands of your permanent trustee who can surrender or cash them whenever able and it is in the interests of your creditors.

In particular, if you owned your own house, alone or jointly with your spouse, and your permanent trustee has not already sold it, your interest in the property remains vested in your trustee. This is the case even if the sheriff refused an application by your trustee to sell the house. It is still their duty to sell it when possible.

If the reason the house was not sold was because there was no equity, it is open to the security holder to call up their security at any time (although they are unlikely to do so if you keep the mortgage payments up to date). But remember that meeting your obligations in terms of the mortgage does not alter the position that your interest in or share of the property still belongs to your trustee who can exercise their right to sell whenever they think it appropriate. Your trustee will still need the consent of your spouse or the authority of the sheriff if the house is a family home.

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Other effects of discharge

Once you are discharged, you can acquire assets again and your permanent trustee will have no claim on those acquired after your date of discharge (but see above regarding payments under life assurance policies, etc). It may also be possible for you to buy back any assets which remain vested in your trustee who will normally look favourably on an offer to buy at current market value. If you think you are in a position to buy back assets, contact your trustee so that arrangements can be made for you to do so as soon as possible after your discharge.

ou will also be able to borrow money again but you may find it difficult to obtain credit as your sequestration will have been noted by the credit reference agencies.

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The sequestration continues

The effect of your discharge on you has been explained above. You should be clear however that this does not bring the sequestration process to an end. As explained, any assets which are left stay in the hands of your trustee and it is their duty to realise them. The creditors are still entitled to recover their debts with interest and your trustee will not be discharged until either all the creditors are paid in full, with interest, or until there are no assets left in the estate.

The law says you must continue to co-operate with your trustee and to give any assistance and information required [section 55(2)(e) & section 64].

Until discharged, your trustee must continue to produce accounts at each claim for remuneration or expenses. You will receive notice of any remuneration allowed by us or the Commissioners as the case may be, and of your rights to appeal [section53(6)].

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Discharge of your permanent trustee

Your trustee can only apply for their own discharge when there are no further claims on the sequestration estate or no assets left. This discharges them of all liability for their actions [section 57(5)]. You will be notified of your trustee's application for discharge and of your rights to object to it [section 57(2)].

If your trustee ultimately succeeds in satisfying all the claims of your creditors, including interest and in recovering all the costs of the sequestration process and there are funds or assets remaining, these will be returned to you at that time [section 51(5)].

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Further Information

Further information may be obtained from us at:

Accountant in Bankruptcy
PO Box 8313
Irvine
KA12 2AA
LP - 4 Irvine
E-mail: helpline@aib.gov.uk
Telephone helpline: 0845 7626171
(calls charged at local rates)

Disclaimer:

The information given on this page is for general guidance only. It is not a detailed or full statement of law.

© Accountant in Bankruptcy - Updated December 2004