If you owe more than £3,000, and then can’t repay your debts when they are due, then you can apply for sequestration. Sequestration is the word used to describe the legal process by which you are formally declared insolvent (bankrupt).
Sequestration is a serious process that can have a significant impact on your life, and that of your family. Before taking the decision to apply for sequestration, you should think about all the alternative ways you could deal with your situation. You should also consider the assets you hold and the effect of losing them.
Court fines, Maintenance payments, Student loans, debts incurred due to fraud and payments for damages are excluded. You will still have to maintain payments to these debts. Secured debts are also excluded, although the related asset may be sold (see below).
The key criteria for sequestration are as follows:
• You must have debts of at least £3,000
• You must currently be resident in Scotland (or have been resident in Scotland within the last year)
• You must not have been made bankrupt in the last 5 years
• You must be able to afford to pay the application fee for sequestration. As well as meeting all the above conditions, you must also meet one of the following criteria:
Either; You have applied for a Trust Deed that didn’t become ‘protected’
Or; You have obtained a Certificate of Sequestration
Or; You meet the Minimal Asset Process stipulations
Or; You are apparently insolvent.
You can get a Certificate of Sequestration from an Approved Money Adviser once they have looked over your finances and deemed you can no longer pay your creditors.
Once you have your certificate, then within 30 days you can apply for your sequestration (called a petition) to the Accountant in Bankruptcy (AiB) through your Money Adviser. There is a £200 fee for applying for sequestration. This can be paid in instalments.
Once your sequestration is awarded, details will be recorded on the Register of Insolvencies, which is a searchable public register.
Throughout the sequestration period (see below), control of all your assets is passed to a Trustee. This can be the Accountant in Bankruptcy or an Insolvency Practitioner. Once your sequestration has been approved, it is likely that your assets will be sold by the Trustee to pay your creditors. This will include all items of reasonable value (e.g. savings, jewellery, vehicles, etc.) but excludes any items that you need for normal daily life. You may also be required to surrender any endowment or pension policies too.
If you’re a homeowner, your property is likely to be your most valuable asset, and if there is any equity available in it, the Trustee may wish to release this equity to distribute amongst your creditors. This may involve selling your home on the open market, or in some cases your spouse/partner or another family member may be able to buy it from you.
There is no automatic discharge at the end of a set period. The Trustee will submit a report to the Accountant in Bankruptcy after 10 months. They will then decide when discharge will be or what further action is required. Further action is only likely to occur in cases where the debtor has not complied with the conditions of the sequestration. In the majority of cases, discharge will be at the 12 month point although this is not guaranteed.
After you’re discharged from the sequestration process (see below), then you don’t have to pay your unsecured creditors any more money. However the Trustee may request that you make a payment from your income for up to four years to go towards repayment of your debts. These are known as ‘Debtor Contributions Orders’. After discharge, if you gain new assets within four years of the date of your bankruptcy, the trustee will be able to claim them. Also your trustee continues to have a duty to sell any assets.
Once you are going through the sequestration process you’ll find it very difficult to obtain credit in future. And, as with bankruptcy in England and Wales, sequestration can cause you to be disqualified from holding certain positions of employment; such as Member of Parliament, Justice of the Peace, governor of a school, member of a Local Authority, or a company director.
So while sequestration might be viewed as a ‘fresh start’ in that your debts are written off, you will find that it will have very severe financial ‘knock-on’ effects that can affect you and your family for many years.
Sequestration should be regarded as very much a last resort although this might still be a suitable debt strategy for you. Bear in mind that there may well be more suitable debt solutions available to you, depending on your circumstances.
We will let you know if this is an option for you and how you can apply. Alternatively, you can visit https://www.mygov.scot/how-do-i-apply-for-bankruptcy or https://www.nationaldebtline.org/S/Pages/default.aspx or call 0808 808 4000.
Need more information? Call 08000 114 999 to Click Here to contact one of our friendly advisors for a confidential chat.