Sequestration
Sequestration is a form of insolvency in Scotland. Bankruptcy is a formal insolvency process in which a Trustee takes control of your estate to deal with your creditors on your behalf.
Sequestration may be suitable if you can’t pay back your debts in a reasonable time. Assets you own, such as your house or car, could be sold to pay off your debts.
How does sequestration work?
An application for Sequestration costs £150 and can be submitted to the Accountant in Bankruptcy.
The fee may be reduced to £0 if you receive certain benefits. You can pay in instalments; however, the full amount needs to be paid before your application can be made.
If your assets are worth more than your debts, or if all of your regular payments are up to date and you can afford to keep paying them, sequestration may not be the right solution for you.
Sequestration is usually recommended if you:
- Owe more than £3,000
- Be living in Scotland or have lived in Scotland sometime during the last year
- Not have been made bankrupt in the last 5 years
You can apply if you’ve received one of the following:
- A certificate for sequestration issued from an approved debt advisor
- A charge for payment served on you and the 14 days allowed for payment have passed without you making a payment
In Sequestration, a Trustee is appointed by the courts to manage the sequestration process.
The Trustee is granted responsibility to investigate whether assets, including any property, should be sold to raise funds for creditors.
Provided you co-operate fully, the Accountant in Bankruptcy may grant their discharge at the end of one year.
Therefore, you have a duty to continue to co-operate with your Trustee and to pay a contribution for the remainder of the sequestration period.
How do I apply for sequestration in Scotland?
Step 1: Consult Approved Money Advisor
Speak to an approved money advisor or Insolvency Practitioner who will clearly explain the Sequestration process to you.
They will advise whether Sequestration is an appropriate solution for you.
Step 2: Submitting your application to the Accountant in Bankruptcy
Your application for Sequestration will be submitted to the Accountant in Bankruptcy by the Insolvency Practitioner or money advisor.
The Accountant in Bankruptcy will award sequestration, set the level of your contribution, which may be nil and appoint a Trustee.
The Insolvency Practitioner who submits your application is generally appointed as your Trustee.
Your application must contain either evidence of your creditor’s agreement or a Certificate of Sequestration and the cost of the application which is £150.
Step 3: Getting in touch with your creditors
Once sequestration has been awarded, your Trustee will contact you to discuss your affairs and the way in which your assets will be realised (put towards your sequestration) if appropriate.
Your Trustee will contact your creditors to advise them that sequestration has been awarded and contact them on your behalf in the future.
Step 4: Being discharged from your sequestration
Provided you co-operate fully, the Accountant in Bankruptcy may grant your discharge at the end of one year.
However, although you may have been discharged the sequestration process does not come to an end. You must continue to co-operate with your Trustee whilst he is in office, normally, for a further three years.
If your Trustee has assets to realise, he will remain your Trustee until he has done so. If you have paid a contribution you will continue to pay this as set out in your contribution order.
Advantages & Disadvantages
Advantages of a Sequestration Scotland – Scottish Bankruptcy
- Once you have been sequestrated, creditors are unable to pursue you or take any legal action against you to recover what they are owed.
- The Insolvency Practitioner will contact your creditors, removing a source of stress.
- Provided you co-operate fully, the Accountant in Bankruptcy may grant your discharge at the end of one year.
- If you are receiving welfare benefits, these will not be classed as income for the purpose of calculating your monthly contribution.
Disadvantages of a Sequestration Scotland – Scottish Bankruptcy
- If you have any assets, like a house or car, these may be sold to release funds for your sequestration (if there is equity in the property)
- It may have implications for your job – for instance you will not be able to act as a company director
- You may find it difficult to take out credit, as sequestration will be recorded on your credit file for six years
- Your name and address will be added to a public register called the Register of Insolvencies (RoI), for a period of five years
What Happens When You Are Sequestrated?
When you are sequestrated, you are formally declared bankrupt. Bankruptcy imposes several restrictions: you cannot serve as a company director, your assets will be used to repay your debts, and you must disclose your bankruptcy status when applying for credit.
How Long Does the Process Last?
The sequestration process typically lasts 12 months. After this period, if you have complied with all requirements, you will be discharged. However, you might still have ongoing financial obligations. You may need to make contributions towards your sequestration for up to four years under a Debtor Contribution Order. Additionally, your Trustee will continue to manage your assets for up to two more years.
Can I Apply for Sequestration if I’m a Homeowner?
Homeowners must be cautious when considering sequestration. Any valuable assets, including home equity, may be used to repay debts. This means there is a significant risk of losing your home if it holds substantial equity that could be used to settle your debts.
Where Can I Get More Information?
Sequestration can be an effective debt solution for those unable to repay their debts, offering a fresh start within 12 months. However, it is a serious decision. For personalised advice and to explore the best options for your situation, contact us today. We specialise in providing tailored debt guidance to help you make the right decision.