Sequestration is the Scottish term for bankruptcy, and is often seen as a last resort by those in personal debt. If you are considering applying for your own sequestration, or have creditors who are trying to force you into bankruptcy, you’re probably wondering what the process entails and how it will affect you.
Here we answer some of the main questions that clients ask us about sequestration, to make the system clearer and help you decide whether it’s going to be your best option.
As long as you cooperate with the Trustee, your bankruptcy will last for 12 months unless you have entered under the Minimal Asset Process, in which case it will be six months. If you do not cooperate, or it is discovered that you have tried to conceal assets, then a Bankruptcy Restriction Order may be made against you which can last indefinitely.
The process does not end with your discharge, however, as the Trustee may need to continue to deal with your assets. You will be advised when they have also been discharged from their duties, and the bankruptcy period is over.
If you own your own home, it will pass to the Trustee who may decide to sell it on the open market. Other options include your partner or a family member purchasing the Trustee’s interest in the property. Whatever happens will depend on factors such as its value, the amount of equity available, and whether any children are living there.
The Trustee will also take control of your other assets, apart from items such as clothing, furniture, tools needed for your trade, and potentially a vehicle if its value is no more than £3,000.
Items bought on hire purchase or from a catalogue remain the property of the company concerned until they are paid in full. This means that purchases may be repossessed following your sequestration.
Sequestration is a public process, and your sequestration will be included in the Register of Insolvencies for two years or more following your discharge. The register is open to public view, and is free to inspect.
Your employer may also find out about your insolvency, so you should check your contract for any clauses relating to bankruptcy that might affect your employment. Some employers will not allow employees who are bankrupt to continue working for them.
Many banks do not allow customers who are bankrupt to operate a bank account, and it may be frozen or closed down when you enter sequestration. Policy varies between banks, but you may be able to open a new basic bank account rather than a standard current account once you have entered sequestration.
You will be able to pay your wages or benefits into your new basic bank account. If you have sufficient disposable income, a contribution towards your debts will be made from your earnings.
Some service providers will prefer to use a pre-payment system if you are bankrupt, or have a meter installed in your home to reduce their risk of being exposed to further debt.
Any debts remaining after you have been discharged from bankruptcy are written off, apart from a few exceptions that include court fines and some student loans. Your previous creditors can no longer pursue you for the debts, but you do remain liable for any incurred after your sequestration.
Your credit rating will be adversely affected by your sequestration for six years at least. During this time and beyond, you are likely to experience difficulty in obtaining finance, and will pay a higher rate of interest for any credit obtained.
Some specialist credit card providers offer ‘credit builder’ cards, which may be worthwhile. If you are eligible, they can help you rebuild your credit rating over a period of time.
Any financial gains during your sequestration must be declared to your Trustee, and will be used to repay your creditors. This includes being the beneficiary of a deceased estate.
If you have further questions or need more detail about any of these points, we can arrange an initial meeting free-of-charge. Scotland Debt Solutions has five offices in Scotland, and offer professional guidance in complete confidence.
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