Can’t afford Sequestration payments due to coronavirus

When you enter sequestration you may have to make monthly repayments to your creditors from your residual income, in addition to handing over all your assets to the Trustee. Initially, your financial situation is assessed by a licensed insolvency practitioner (IP), and if they believe you have sufficient income after your essential household bills have been paid, they may ask you to sign an Income Payments Agreement (IPA).

Making sequestration payments under an IPA

When an Income Payments Agreement or Income Payments Order is made, it means you have to make regular monthly sequestration payments, typically for three years. As long as your circumstances and income remain the same over this time, repayment amounts are unlikely to change.

The severe economic consequences of coronavirus has led to widespread job loss and economic damage, however, so what happens if you can’t afford your monthly sequestration payments due to effects of the pandemic?

Potential for changes to sequestration payments

The sequestration procedure incorporates some flexibility in payment amounts, as it’s understood that life and financial circumstances can quickly change. Divorce, job loss, and ill health are just three common reasons why financial situations can decline, but coronavirus has caused serious issues for people worldwide.

When considering what to do if you can’t afford your sequestration payments because of COVID-19, one of the main points to remember is that you must remain in contact with your Trustee.

You should inform them of your change of circumstances straight away, and let them know that you’re worried about making the required payments. But what will the Trustee do in this situation?

• The Trustee will reassess your finances and may lower the repayments for a time
• They could also suspend your agreement so you wouldn’t have to make any payments to the IPA unless your situation improves again

Reassessing your finances

Not everyone who has entered sequestration will be able to pay their creditors on a monthly basis. Assets are transferred to the Trustee who sells them at auction, but sometimes debtors cannot afford to enter into an IPA as their earnings and income are too low.

When you enter sequestration you no longer have to pay your unsecured creditors individually, however, which in some cases can lead to more money being available. The original assessment of your financial situation when you entered sequestration established your total income and essential living costs.

These typically include mortgage/rent payments, heat, light, and food, and the same process applies if coronavirus has worsened your financial position and you can’t continue to make your sequestration payments.

Your living costs will be deducted from any income you receive, to establish whether you have residual income, and if so, if you can afford to make lower monthly payments to your creditors.

Open and honest communication

If you fail to inform your Trustee that you can’t afford your sequestration payments, or simply miss a payment and don’t tell them, they may decide to take action against you – delaying your discharge from sequestration, for example, or informing the court that you’re not complying with the rules.

If you’re worried about your sequestration payments because of coronavirus, Scotland Debt Solutions can provide reliable independent advice. We’ve been helping Scottish residents to escape debt since 1989, and can offer you a free same-day consultation to quickly establish your situation. Please contact one of our expert team – we work from a network of offices around Scotland.