Debt Advice Handbook Scotland 1st ed - with new materialChapter 6: Statutory debt solutions in Scotland8. Common rules in bankruptcy Assets
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Assets
When making an application, clients are expected to detail all their income, assets and liabilities. Assets can include money held in a bank account, vehicles, property and life insurance policies.
Most, but not all, assets ‘vest’ in the trustee and it is their duty to try and realise the full value for the benefit of the creditors.
For MAP, there are limits on assets held, as follows.
    •The total value of the client’s assets (leaving out of account any liabilities) on the date the client application cannot exceed £2,000 or such other amount as may be prescribed.
    •No single asset of the client can have a value which exceeds £1,000 or such other amount as may be prescribed.
    •The client cannot own land.
Note: if the client acquires assets after discharge (six months), they may still need to inform the AiB, as per section 3 of the Statement of Undertakings, and the case will be moved to the FAB process.
Money in bank accounts
When a trustee is appointed, they may notify all banks of their appointment and ask if there are any assets, in the form of money, in the account. They are then entitled to this money which forms part of the client’s estate.
In a MAP, if there is more than £1,000 held in a bank account(s), the client will be refused the MAP application and moved to the FAB process.
If the client has more than one bank account, these can be counted as one single asset.
If they have a joint account, they will be deemed to have half of the asset.
Make sure that the client has less than this when they make the application. Timing can be vital.
In some cases, the client’s bank account may be frozen. This will be because the bank has received notification from the trustee that the client is bankrupt.
Although a bank will not allow a bankrupt to maintain a normal current account, it is possible to have a bank account, as long as it does not allow an overdraft or the provision of credit.
This can happen even when there is no money in the account and can cause problems for ongoing bill payments etc.
To deal with this, the client is issued with a letter, along with their award certificate, which states the trustee has no objections to the client operating an account/s if they hold less than £2,000 after the award of bankruptcy. This letter must be taken to the nearest branch of the bank that has frozen the account.
It may also be advisable that the client gets a new, clean bank account before they apply for their own bankruptcy. Many banks operate a basic bank account for bankruptcy clients.
If there is a joint account, this can also be frozen and it is advisable to get both parties to open a separate account each before making the application.
Life assurance policies
These also vest in the trustee as part of the client’s estate, and how the trustee deals with them will depend on whether there is a surrender value or not.
Any policy which has a surrender value will vest in the trustee for the duration of the bankruptcy and the trustee should attempt to realise the asset by surrendering the policy or having a third party buy out the trustee’s interest.
If the surrender value of the policy is more than £1,000, the client will not qualify for a MAP.
Any policy which does not have a surrender value should be treated as a non-vested contingent asset which will vest in the trustee for a period of four years from the date of sequestration.
Should the asset be realised, it will form part of the client’s estate and vest in the trustee for the benefit of the creditors.
If the policy is put ‘in trust’, it does not vest in the trustee.
However, if the client is the beneficiary of the trust, and it becomes due during the four years from the date of sequestration, it does then vest in the trustee.
It may be worthwhile asking the client to make sure all policies are put in trust for a family member and not themselves.
You can do this with the help of a regulated financial adviser. There is usually no fee for this.
Vehicles
Vehicles worth £3,000 and under, and are needed by the client, do not vest in the trustee and are not counted as an asset.1s2(3)(b) B(S)A 2016
Vehicles worth over £3,000 exclude the client from entry into a MAP. They must go down the FAB route.
The following can be used to obtain a valuation:
    •a reputable car dealer that clearly highlights the condition of the vehicle and the reasons for the valuation (eg, damage, high mileage);
    •an independent car dealer, preferably on headed paper, highlighting the condition of the car and the reason for the valuation;
    •Parkers (and similar companies) who provide an online valuation.
Valuations from companies offering quick access to cash (eg, WeBuyAnyCar, Arnold Clark, Motorpoint or Motorway) cannot be used to obtain a valuation. These companies offer below book price valuations.
If a client is unable to provide a valuation on headed paper as the dealer may be in a rural area, a full explanation from the money adviser detailing the condition of the car and the reason for not being able to provide a formal valuation must be provided.
Be aware that while this may go some way to progressing a case, it may not be possible in every case.
Remember that the AiB might value the vehicle themselves and come up with a different valuation, so be careful and maybe get two or three valuations before applying if it is close to the £3,000 limit.
See the AiB Debtor Application – evidence requirements checklist.2aib.gov.uk/publications/debtor-application-evidence-requirements-checklist
 
1     s2(3)(b) B(S)A 2016 »
2     aib.gov.uk/publications/debtor-application-evidence-requirements-checklist »
The family home
Under MAP criteria, your client cannot own any property. Therefore, if your client does own it in part or in whole, they must look at the FAB procedure.
For FAB, the family home is an asset and will vest in the trustee as at the date of sequestration.
If your client lives with someone and the title deeds are in the other person’s name, it does not become part of the client’s estate or vest in the trustee.
To be sure about this and if there are any doubts, obtain a copy of the title deeds from the Registers of Scotland.
If the title deeds are in the client’s sole name, 100 per cent of the equity vests in the trustee. If it is in joint names, 50 per cent vests in the trustee. How the trustee deals with the asset is determined by how much equity there is. Where there is extensive equity, the trustee will more than likely want to sell the property and realise it for the benefit of the creditors. Where there is little or no realisable equity, the trustee has further options.