What is Sequestration (Scottish Bankruptcy)?

The appointment of a Trustee to your affairs is a vitally important step in the context of a sequestration scenario. What happens is that your Trustee takes control of any assets that you own and scrutinises your ability to pay back the creditors to which you owe unsettled amounts of unsecured debts.

The Trustee will then decide upon the best way for you to settle your outstanding debts as fully as possible by selling any assets with value and mapping out a repayment plan for the future.

The Trustee also takes responsibility for liaising with your creditors in a way that should mean they realise you aren’t likely to pay them back in full. Strictly speaking, the Trustee has 60 days in which to inform each of your creditors that you have been sequestrated and that your financial affairs are essentially being reconstituted from that basis.

It could be that your creditors will seek to contact you and demand or request payment of debts that you owe. However, sequestration is a legally binding process and you are not obliged to respond to your creditors in any way other than through the Trustee appointed to your affairs.

The premise behind sequestration is that the process only applies in a situation whereby an individual owes money to one or a series of creditors but has no means and no prospect of settling those unsecured debts. As such, sequestration involves the transfer of your assets to the control of a Trustee, who is then responsible for finding a route forward that is fair to all the parties involved.

So, if you own all or part of a property, those assets are likely to enter the equation and your home might need to be sold or leveraged in some other way to raise funds to settle some of your debts.

However, it could be that the fees involved in the process of selling a property or raising equity from it could make that course of action unhelpful and ultimately not worthwhile. So whether or not you will need to sell your home might depend on the value of the asset and how much it would cost to raise money from it, which will be a decision made by your Trustee.

A Fresh Start

Perhaps the most significant benefit to be gained from sequestration is that it enables individuals to draw a line under their unsecured debt problems and start moving forward. There are consequences and restrictions on individuals who enter sequestration but in many cases it may be the best way forward to resolve their current situation.

Relief from creditor demands

The nature of a sequestration scenario is such that an appointed Trustee acts as a mediator between debtors or creditors, which can help provide reassurance for both. From the perspective of debtors, the role played by a Trustee in settling issues or disputes of any sort with creditors can be a big help in alleviating fears and understanding options more clearly.

Third party assistance

Sequestration essentially hands responsibility for your financial affairs over to a third party who is a licensed insolvency practitioner, which has its disadvantages but when your finances have become a nightmare then it can be an enormous relief. The arrangement relieves indebted individuals of the need to fend off creditors who in many cases might otherwise be relentlessly demanding payment of outstanding debts. All the creditor correspondence can be passed to your Trustee to correspond with them directly.

Improved financial prospect

What sequestration proceedings provide ultimately for anyone facing serious debt problems is the prospect of improving their financial position. Whether you enter sequestration voluntarily or are forced into that position by creditors, the process can create a sense of positivity and of taking action. This in turn can lead to an individual feeling not just relieved but also as if there is some light at the end of the tunnel when it comes to dealing with unsecured debts of any kind. Should you fall behind with mortgage payments and your house be repossessed by the bank any shortfall of mortgage arrears can also be discharged through the sequestration.

Anyone who enters sequestration will be banned from acting as a director of any company while undischarged. The ban also extends to cover any meaningful involvement in the promotion, formation or management of any business for that same period of time.

One inevitable consequence of entering sequestration will be the placing of significant restrictions on credit availability. You will not be able access credit in excess of £2000 while undischarged (and for up to 6 months after if a MAP sequestration), which could be a challenge to deal with if you’ve been accustomed to having much greater financial flexibility.