The LILA route into bankruptcy & your credit rating

If you live in Scotland and you have a significant amount of unsecured debt you can’t repay in a realistic amount of time, insolvency may be the best approach to improving your finances.

Bankruptcy is still the most common type of insolvency in Scotland, but it can have a big impact on your situation, which some people may find off-putting.
Let’s look at the LILA (Low Income, Low Asset) route into bankruptcy and how it can affect your credit rating.

What is the LILA route into bankruptcy?

The LILA route into bankruptcy is designed to help people tackle serious debt problems and get out of debt.

As the name suggests, it’s aimed at people with a low available income and limited assets that they could put towards repaying their unsecured debts. Rather than being a debt solution in its own right, remember that LILA is a route into bankruptcy.

Can I qualify for the LILA route into bankruptcy?

There are certain criteria you must meet to qualify for the LILA route into bankruptcy.
LILA could be the right option for you if:

Your weekly earnings are less than the minimum wage for a forty-hour working week – which currently stands at £237.20.
Your personal assets are worth no more than £10,000 in total – or £1,000 each. This means the LILA route into bankruptcy will not be appropriate if you’re a homeowner.
You’re unable to make your monthly payments towards your unsecured debts.

There’s a £100 application fee for the LILA route into bankruptcy. If your application is successful, you’ll be declared bankrupt.

As with the normal route into bankruptcy, bankruptcy through LILA usually lasts for a year. On successful completion, your unsecured lenders will write off the remainder of your debt.

It’s important to get professional advice if you’re thinking about applying for LILA – Debt Advice Now offers more information.

Will the LILA route damage my credit rating?

Most debt solutions will affect your credit rating – and the LILA route into bankruptcy is no exception. Taking the LILA route into bankruptcy will remain on your credit file for six years – which will probably make getting further credit during this time very difficult.

However, not getting help with your unmanageable debts could have even more serious consequences in the long term, so if you think the LILA route into bankruptcy is the best approach for you, discuss your options with a professional debt adviser as soon as possible.