Does Bankruptcy Stop A Wage Arrestment In Scotland?

The date is the part worth getting right, because it decides which deductions stop and which ones you never see again. Money already taken is credited against the debt rather than refunded.

Below is what section 72 actually does, what replaces the arrestment, how the Minimal Asset Process fits, and how all of that differs from a protected trust deed, which bites on a different date.

How does sequestration stop a wage arrestment?

By operation of law rather than by any hearing. Section 72(2) says the arrestment ceases to have effect on the date of sequestration, so nobody has to argue for it.

What section 72 does, subsection by subsection

The section sits in the Debtors (Scotland) Act 1987, which is the same Act that creates the earnings arrestment in the first place. The table below takes it apart.

No sheriff weighs whether the deduction was fair. The arrestment falls because the statute says it falls.

Payroll still has to be told

The arrestment ceases to have effect on the date of sequestration whether or not payroll has been told. Keep your payslips and raise it straight away if a deduction appears for a pay period after that date.

Section 72(2) names an earnings arrestment, a current maintenance arrestment and a conjoined arrestment order, so ask about anything else on your payslip separately. What sequestration is covers the wider process.

What does the date of sequestration actually mean?

It is fixed by section 22(7) of the Bankruptcy (Scotland) Act 2016. For a debtor application it is the date sequestration is awarded, and for a petition it is the date the sheriff granted the warrant.

Why the wording matters

It is not the day you decided to apply, the day you saw a money adviser or the day your employer found out. The Bankruptcy (Scotland) Act 2016 sets one date and section 72(2) hangs off it.

Everything deducted up to that date stays deducted. Everything after it should not have been taken at all.

The gap before the award

Between deciding to apply and the award being made, an arrestment carries on taking money. So the date the award is made decides how many more deductions come off.

A statutory moratorium gives six months of protection and you get one per rolling 12 months. It stops service of a charge for payment, stops new diligence and stops creditor petitions for sequestration.

Whether a creditor can carry on an earnings arrestment your employer is already operating is treated differently in the Accountant in Bankruptcy’s adviser guidance from the general statement of the rule. Ask a money adviser to confirm the position on your facts before relying on it.

Does the Minimal Asset Process stop a wage arrestment too?

Yes. The Minimal Asset Process is a form of sequestration, so section 72(2) applies to it in exactly the same way and on the same date.

The conditions in section 2(2)

The gateway is section 2(2) of the Bankruptcy (Scotland) Act 2016, and every condition has to be met. There is no creditor route into it.

The two look-back periods are different and are easy to run together. Ten years bars a repeat Minimal Asset Process, and five years bars it where the earlier award came any other way.

There is no minimum debt

The £1,500 floor was removed from section 2(2)(b)(i) with effect from 6 February 2023. Guidance written before that date gives the old figure.

There has also been no application fee for the Minimal Asset Process since 6 February 2023. Discharge comes automatically six months after the award.

What replaces the wage arrestment after sequestration?

A Debtor Contribution Order, assessed with the common financial tool. It is worked out from your income and your assessed expenditure rather than from the Schedule 2 tables.

How the figure is arrived at

The assessment runs through the common financial tool under section 89 of the 2016 Act. The contribution is your whole surplus income above the lower of the trigger figures for reasonable expenditure and your actual expenditure.

So there is no statutory percentage. Expenditure above the trigger figures can be allowed where it is accepted as reasonable, and a contingency allowance has to be left with you.

Where the contribution is nil

Where income is solely from social security benefits and tax credits, no contribution is due. That is written into the regulations rather than left to discretion.

The Accountant in Bankruptcy publishes its guidance on the common financial tool, which is the assessment every debtor application runs through.

How long it runs

The default payment period is 48 months beginning with the date of the first payment. The requirement to pay applies whether or not you have been discharged.

Where payments are missed for two payment intervals the trustee can instruct your employer to deduct the contribution and pay it over. So this is not a route out of paying anything at all.

Do you get back money already taken from your wages?

No. Money deducted before the date of sequestration is credited against the debt and is not usually refunded, so check the position with the creditor.

Why the credit still counts for something

The sums taken reduced what you owed, so they are not lost. They come off the balance the trustee is dealing with rather than coming back to your account.

A protected trust deed is treated the same way, and money taken before the date of protection is credited rather than returned.

Money taken before a Debt Payment Programme is approved is credited against the debt and is not usually refunded. Check the position with the creditor.

Keep the payslips

Each deduction should show on a payslip, and the credits should match. Why an arrestment can take more than you expected covers the reasons a figure can look wrong.

Where a deduction appears for a period after the date of sequestration, raise it with payroll and with the trustee. That one is a different question from a refund.

Can creditors start a new arrestment after sequestration?

Not for debts claimable in the sequestration. Section 72(4) stops a creditor executing a new earnings arrestment or obtaining a conjoined arrestment order for those debts.

What happens to other diligence

An arrestment or attachment executed in the 60 days before the date of sequestration, or after it, creates no preference for that creditor, and the arrested or attached estate transfers to the trustee.

Earnings arrestments, current maintenance arrestments and conjoined arrestment orders are expressly outside that 60-day rule. They are dealt with by section 72 instead.

The debts that survive discharge

Discharge does not clear everything. Fines and other penalties due to the Crown, compensation orders, liabilities incurred by fraud or breach of trust, aliment and a periodical allowance on divorce all survive it.

Student loans survive as well. Which bills count as priority debts looks at what makes a debt harder to deal with in the first place.

How is a protected trust deed different?

A protected trust deed ends an existing earnings arrestment on the date of protection under section 173 of the Bankruptcy (Scotland) Act 2016. That is not the date you sign it.

The gap between signing and protection

Between signing and protection you are still exposed, which is why a statutory moratorium is worth asking about for that gap. What a protected trust deed is covers the objection threshold and the timetable.

Whether a trust deed stops a wage arrestment takes that date question on its own. Do not read a signed trust deed as an arrestment already stopped.

When each route reaches the arrestment

The table below is keyed to one question only. It gives the moment an earnings arrestment already running comes to an end.

None of these reduces a deduction. There is no hardship or affordability route against an earnings arrestment at all, which the unduly harsh application explains in full.

Is bankruptcy the right way to stop a wage arrestment?

It is one of several statutory routes that end an arrestment, and it is the most serious of them. Whether it fits depends on the size of the debt, what you own and whether a lighter route would do the same job.

The routes in, and what they cost

A debtor application for full administration needs debts of not less than £3,000, so £3,000 exactly qualifies. It also needs money advice and a statement of undertakings.

The application fee is £150. It is not payable where you receive qualifying benefits, an exemption in force since 29 March 2021, or where the common financial tool assesses you as having no surplus income, an exemption in force since 6 February 2023.

A creditor can petition where it is owed at least £5,000, a figure substituted with effect from 1 October 2022, and the apparent insolvency relied on has to have been constituted within the previous four months. Petitions go to the sheriff court.

What it puts on the record

Sequestration is entered on the Register of Insolvencies, which is public and free to search, and bankruptcy is held on a credit file for six years from the date it begins. Whether a wage arrestment affects your credit score covers what is and is not reported.

Council tax arrears themselves are not reported to credit reference agencies in Scotland. The sequestration is.

The lighter routes worth testing first

A Debt Payment Programme under the Debt Arrangement Scheme is not an insolvency solution and you do not have to be insolvent to use it. Whether it stops a wage arrestment sets out what approval does.

Council tax arrears can go into a programme and the current year’s liability cannot, so that has to keep being paid alongside. What the scheme is covers how it works, and which solution fits a wage arrestment weighs the options against each other.

Official guidance on debt and diligence in Scotland sets out the formal routes, and free advice is available from Citizens Advice Scotland, StepChange, Money Advice Scotland and National Debtline.