Advantages of a Scottish Sequestration (Bankruptcy)

It can seem like a scary prospect but it’s a genuine, legal, and sometimes necessary process designed to bring people out of financial ruin and back onto a solid financial footing.

Although declaring yourself bankrupt is a difficult step to take, in some cases it is the most appropriate option for an individual’s needs and financial position. In situations of dire financial distress, both time and stress can be saved by opting for sequestration.

Regardless of the reasons behind your financial distress, sequestration might be the best option to take providing you are a Scottish resident with high levels of debt that you can’t afford to repay and no assets to sell. However, before you go down this road, you need to be absolutely sure it is the most appropriate solution to your current financial difficulties.

Our specialist insolvency advisors can help you understand more about the sequestration process and whether it’s right for you, particularly when compared to other common Scottish debt help solutions such as Debt Arrangement Schemes (DAS) and trust deeds.

While sequestration does have a number of significant drawbacks, the process does come with some key advantages too.

  • Once you have been sequestrated your creditors can no longer chase and hassle you for payment. You may occasionally receive contact from one or two, but by simply telling them your sequestration reference number and passing on your Trustee’s details, they’ll get the picture and stop contacting you. You will not need to make payment to them over the phone if they demand it – they are simply chancing their luck. Any payments you are required to make will be made to your Trustee who will then distribute this money accordingly.
  • Having an insolvency practitioner (who will act as your Trustee) to hand will be of huge relief to you. They can liaise with your creditors directly, taking away the stress and strain of ignoring the phone and leaving your mail unopened. Almost all of your unsecured debts, such as credit cards, loans, store cards, council tax and payday loans can be included in your sequestration; only debts such as student loans, criminal charges and fines cannot be cleared or written off through your sequestration. You may be expected to make contributions towards your debts through the sale or realisation of any assets you have, or make a contribution from your free disposable income; however, your Trustee will be able to advise if this is likely to be the case before you apply for sequestration. If you have little in the way of assets or surplus income then you may not have to make any contribution whatsoever and the debt will then effectively be written off.
  • You will typically be discharged from sequestration after 12 months. If you have been put under a Debtor Contribution Order (DCO) and asked to make payments from your disposable income, this may last up to four years. Despite this, the record of your sequestration will remain on your file for six years, severely limiting your access to credit during this time.

You may not have to sell all of your assets; for example, if you are a sole trader you can keep tools or essential work items so that you can carry out your job. You can also keep essential items for general day-to-day living such as clothes, furniture, cooking utensils, and children’s toys.

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FAQ

FAQ on Sequestration

Am I likely to lose my home in sequestration?

It is possible that your home may need to be sold or remortgaged in order to raise money if you own part or all of it. This is not always the case, however, and much depends on whether the cost of raising money in this way makes it a viable option. This is a decision that only your Trustee can make.

Are there any disadvantages to Sequestration?

Losing control of assets, such as your home and car, is a possibility. Sequestration will be noted on your credit file for a period of time, which is dependent on certain factors determined by credit agencies and how creditors view the information. Your sequestration can be viewed in the public Register of Insolvencies. Your job may be affected if there are restrictions written down in your contract of employment regarding sequestration You won’t be able to act as director of a company

How does the Sequestration process start?

You can either sequestrate yourself, or alternatively a creditor owed more than £3,000 can start the procedure. To enter sequestration yourself you need an approved money advisor to agree that you are in fact insolvent, and that other procedures are not more suited to your circumstances. Once this has been established, they will issue a Certificate of Sequestration which is valid for 30 days. This is sent to the Accountant in Bankruptcy, along with the application for sequestration and the fee of £200. For a creditor to start the sequestration process, they have to be owed more than £3,000. They may already have sent you a Statutory Demand, and will lodge a petition for your sequestration with the court. If no single creditor is owed £3,000 they may get together to organise a joint petition.

How long does sequestration last?

You are normally discharged from sequestration after 12 months. You will be discharged after 6 months if you enter sequestration through the MAP route. Your Trustee will remain in office for a further period of two years, during which time they may continue to realise your assets. Even though you have been discharged, you must cooperate with your Trustee.

What are the advantages to sequestration?

Creditors will not be able to take further legal action against you, alleviating much of the pressure associated with being in debt Your Trustee becomes an intermediary between you and your creditors, dealing with all correspondence relating to your debts Once you are discharged you do not have to repay the debts which you had when you were made bankrupt, although there are some exceptions to this. You are still responsible for paying: fines, penalties, compensation and forfeiture orders imposed by any court; any liability due to fraud including benefit overpayments; any obligation to pay ongoing aliment; some students loans; and money owed to someone who holds a security on your property, such as a mortgage or secured loan. Apart from the exceptions listed above, your pre-bankruptcy creditors will not be able to take any legal action against you to recover their debts.

What are the eligibility criteria for sequestration?

You have to be resident in Scotland, owe more than £1,500 and be unable to meet payments as they fall due. Additionally, you must not have been in sequestration during the previous five years.

What happens after the initial 12 months of sequestration?

If you can afford to, you will need to continue making repayments from your income for a further period of 36 months. Your Trustee will remain in contact, and you are obliged to cooperate fully.

What happens to my car in sequestration?

If you own a car worth more than £3,000, or you have no real need for a vehicle, it may need to be sold to raise money for your creditors. Alternatively, your Trustee may ask you to sell it and buy a cheaper one so that you can put the difference to paying off your debts. If a vehicle is needed to get to work, however, selling it may not be the best option and you may be allowed to keep it.

What is sequestration?

Sequestration is a form of insolvency available to Scottish residents, whereby assets are transferred to the control of an appointed Trustee in order to pay off unsecured debts. It is very similar in nature to bankruptcy in the rest of the UK, and is seen as a measure of last resort to pay creditors and permanently write off debts. You can apply for sequestration yourself, or if one or more of your creditors are owed £3,000 or more they can apply to put you into sequestration in order to recover part or all of their debts.

What type of debt is included in a sequestration?

Unsecured debt including credit cards, loans and overdrafts are included in sequestration, as well as arrears on household debts such as utility bills and council tax. Any debt secured on an asset is not included. Nor are student loans, Child Maintenance payments, fines or overpayment of benefits.

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