LILA - the Low Income Low Asset route to bankruptcy

What is LILA?

LILA is the Low Income Low Asset route into bankruptcy for Scottish residents. It was introduced in April 2008 to provide a way into bankruptcy for people with unmanageable debts, who otherwise would be unable to qualify.

Bankruptcy is the only form of insolvency that is available in every part of the UK. LILA, on the other hand, is only available to Scottish residents.

If you're considering bankruptcy, the LILA route is only suitable if your income is below a certain level and your combined assets are worth no more than £10,000.

Why would I want to declare myself bankrupt?

Bankruptcy is usually considered a last resort, but for certain situations it's the best course of action. If your disposable income is limited (and isn't likely to improve in the near future) and if you have no real way of repaying your debts, bankruptcy can offer a 'light at the end of the tunnel' for really unmanageable debts.

If you enter bankruptcy, you will be protected from legal action from your lenders, which can really take a weight off your shoulders. Also, bankruptcy writes off all of your unsecured debts, allowing you to make a fresh start when the bankruptcy is over.

Obviously there are some disadvantages, which should be considered. For example, bankruptcy stays on your credit file for six years, making it more difficult to borrow money in the future. Even so, it is still the best option for some people. The LILA route is simply another way to enter bankruptcy for people who may not otherwise be able to declare themselves bankrupt.

What is a 'low income' when applying for LILA?

To qualify for LILA, you would need to have a gross weekly income of £247.60 per week or less. This is based on a 40-hour working week on the standard national minimum wage.

If you receive income support, working tax credits or income-based jobseekers' allowance, you'll still pass the low-income 'test' even if your weekly income is actually above £247.60 - so you could still qualify for LILA. Also, tax credits, social security benefits and income paid to family members aren't taken into account when you apply for LILA.

However, your income, pension, maintenance payments, benefits, tax credits and the income of other family members will be taken into account when calculating whether you can afford to make any payments while you're bankrupt.

What are 'low assets' when applying for LILA?

Assets are the things you own and could include a car, a house, etc. To qualify for LILA, your assets must not be worth more than £10,000 in total and you can't own anything worth more than £1,000 on its own. You won't qualify for LILA if you own (or jointly own) any property or land.

How many people use LILA?

Scotland's insolvency service, the Accountant in Bankruptcy (AiB), recorded that 1,305 people took the LILA route to bankruptcy between April and June 2011. There were 2,947 bankruptcies in Scotland in total over those three months - so nearly half of those people took the LILA route.

How do I apply for LILA?

If you think you'd like to apply for the LILA route to bankruptcy, you can speak to an expert from All About Money about whether it is the right choice for you and how to apply.

If, after speaking to one of our advisers, you think it is right for you and you'd like to go ahead, you'll need to pay an application fee. If your application is successful, you will enter into bankruptcy.

Bankruptcy usually takes a year in Scotland, your unsecured debts will be written off and you will also be protected from any further legal action from your lenders.

So call one of our advisers today to find out more about LILA. Even if LILA isn't right for you, you could find out about other debt solutions that can help you on your way to becoming debt free.

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