Reviewed 5th December 2019
There are many advantages for those who cannot see a way out of their current situation – sequestration provides a fresh start financially, and prevents further harassment from creditors.
But you need to consider all the consequences of declaring yourself bankrupt in Scotland, or of a creditor forcing you into sequestration, a process that can happen if you owe £3,000 or more.
Should you have very little income and minimal assets, you may be eligible to use the Minimal Asset Process (MAP) to enter sequestration. This means that you could be discharged after six months, and the Accountant in Bankruptcy (AiB) is likely to act as your Trustee in this case.
Sequestration generally lasts for a period of 12 months, but this timescale depends on how you cooperate with your Trustee, and if they believe that you should be discharged. In addition to handing over your assets, a calculation will be made to see if you can afford to make an ongoing contribution towards your debts. If so, a Debtor Contribution Order will be made, which can last for up to four years, even if you’re discharged after 12 months. The financial contribution is flexible, however, and allows for changes in your circumstances over time, whether for better or worse.
You will need to hand over control of your assets, including any property you own, vehicles, shares and cash savings, to your appointed Trustee. Other factors to bear in mind with regard to your assets include:
Should you inherit money up to four years after the start of your sequestration, or receive any windfall payments such as a lottery win or PPI claim, they must be disclosed to the Trustee, who will use them to repay your creditors.
You will have no access to credit or further borrowing whilst sequestrated, and will find it extremely difficult to obtain credit for the six years that your bankruptcy is included within your credit file. Even after this time, lenders will be very reluctant to accept an application for borrowing. There are certain steps you can take to rebuild your credit rating, but these take a considerable time to make a difference to your borrowing ability.
The Register of Insolvencies contains details of current sequestrations, plus those discharged during the last two years. This public disclosure could potentially lead to problems with your employer if they see that you are bankrupt - some industries are reluctant to employ staff in this position, particularly those in law enforcement and finance.
You will not be able to act as a limited company director, and may not be accepted onto other boards, such as school governors or pension trustees.
Your Trustee may decide that you need to take part in a financial capability programme to improve your financial awareness, and help to ensure you remain debt-free once discharged from bankruptcy. If you require further information on sequestration and how it will affect your life, Scotland Debt Solutions can help. We offer a free same-day meeting to establish your financial position, and guide you towards the best options for dealing with your debt.
As many as one in four Scottish renters or mortgage holders are worried about whether they’ll be able to cover their housing costs over the course of this year.
Rules relating to Debt Arrangement Schemes (DAS) have been relaxed in ways that should provide extra breathing space for Scots whose finances have been adversely affected by the Covid pandemic.
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.
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
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. (*This figure is temporarily set at £10,000 following the Scottish Coronavirus Act).
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.
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.
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.
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.
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.
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.
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.
Our Scottish based team can help advise you on your debt problems.