What are the consequences of sequestration (bankruptcy) in Scotland?

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.

What are the ramifications of sequestration?

Your contribution to the debts

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.

Assets

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:

• Your home may be at risk if there is sufficient equity available to repay some or all of your debt. If your home is rented, it’s also worth checking your tenancy agreement to see if the landlord can evict you under these circumstances.
• You may be able to retain a vehicle if you need it for work purposes, and its value is less than £3,000
• Money in bank and building society accounts will also need to be handed over, as well as all debit and credit cards. Your bank may decide to close your account(s) altogether, particularly if they are one of your creditors.

Inheritance and windfalls

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.

Access to credit and your credit file

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.

Public register and potential employment issues

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.

Banned from certain key roles

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.

Financial education programme

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.