What is Sequestration?
Sequestration is the Scottish legal term for Bankruptcy. Sequestration is an option if you are unable to pay your debts as they fall due and can allow for up to 100% of your debts to be written off. A Trustee would take control of your assets and assess whether you would need to pay an income contribution towards your insolvent estate. It is an alternative to other forms of debt relief such as the Debt Arrangement Scheme (DAS) or a Scottish Trust Deed.
Would I qualify for Sequestration?
To make yourself bankrupt you must meet the following criteria:
- You currently live in or have lived in Scotland within the last 12 months, or have a place of business in Scotland
- You have debts of over £1,500 (£3,000 from 1 April 2015)
- You have Apparent Insolvency and/or you are unable to pay your debts as they fall due
- You have not made yourself Bankrupt within the last 5 years
There are various ways of applying for bankruptcy in Scotland; these are using a Certificate for Sequestration, by showing apparent insolvency and the Low Income Low Asset (LILA) route (this will be replaced on 1 April 2015 by the Minimal Asset Process (MAP)). Regardless of the route into bankruptcy, all involve making an application to the Accountant in Bankruptcy (AiB). Please remember you can also be made bankrupt via creditor action, if you are being threatened with sequestration action then please contact one of our advisers, as a matter of urgency.
How does Sequestration work?
You will meet with one of our bankruptcy experts who will explain the options available to you. If you decide sequestration is the best option, you would complete an application to the Accountant in Bankruptcy applying for your sequestration. Once your sequestration has been awarded you are protected from any creditors taking legal action against you.
Your Trustee’s main duty in the sequestration is to take control of your assets and, if required, realise them for the benefit of your creditors. Your Trustee will also review your income and expenditure and assess whether you can afford to make a monthly income contribution to your Sequestration. Both duties are very similar to the responsibilities assumed by a Trustee under a Trust Deed.
You are normally discharged from your Sequestration after 1 year, however, if you can afford a contribution then you will be required to make a monthly payment to your sequestration for a period of 3 years (4 years from 1 April 2015).
As debt advisers, we are here to support you to make the right decision for you. If you feel comfortable with your decision we will start the process for you, and you will always be able to contact your bankruptcy adviser if you have any questions. Although nobody wants to go bankrupt, once completed, you can look forward to a debt free future, with no more creditor contact, no more monthly payments, and no more stress.
Advantages of Sequestration
- 100% debt relief is possible
- Creditors do not have an opportunity to reject the Sequestration
- Once sequestrated, creditors cannot take legal action to recover their debt
- You no longer have to deal with your creditors – your Trustee will do this for you, taking away the pressure of the constant phone calls and distressing mail
- Interest, fees and charges are frozen – your creditors can only claim for the outstanding balance due as at the date of sequestration
- If you are asked to pay a contribution, then it will be an affordable monthly payment that is calculated after an allowance has been made for all your general living expenses and household bills.
- You will be discharged from your sequestration after 1 year (assuming your Trustee does not have cause to delay your discharge)
- Your application does not involve court proceedings
- Sequestration stops existing diligence e.g an earnings arrestment or an Inhibition
Disadvantages of Sequestration
- Assets of a significant value may be sold for the benefit of creditors
- Unable to act as a director of a limited company or be involved in the formation, promotion or day-to-day financial management of a limited company
- It may harm your employment prospects both now and in the future
- Student Loans are not discharged by Sequestration
- Adverse effect on credit rating
- £200 application fee to be paid to the Accountant in Bankruptcy
- Unable to incur credit of more than £500 for the duration of the sequestration
- Unable to act as a Member of Parliament or a Justice of the Peace
- An individual may be in breach of certain contractual obligations by being made bankrupt e.g. tenancy/lease agreements, various licences, employment contracts, HP agreements etc
How much does Sequestration cost?
- You must pay an application fee of £200 to the Accountant in Bankruptcy when applying for your sequestration.
- The Trustee’s fees and costs are then met from the funds received into the Sequestration through the realisation of assets and the monthly contribution; there are no payments due by you over and above the agreed contributions from your income and/or your assets.
- We do not charge set up fees and we would advise against using any company who does.
- Creditors are given the opportunity to object to the level of the Trustee’s fee at each anniversary of the sequestration.
- There is no cost to you if you decide against making a sequestration application after having a meeting with one of our bankruptcy advisers.
Trust Deed Example
Example Unsecured Debts
|2||Credit card 1||£6,812|
|3||Credit card 2||£4,092|
|4||Credit card 3||£5,399|
|4||Credit card 4||£5,200|
Your Monthly Repayments Would Be
a Scottish Trust Deed £748
(total contractual repayments)
a Scottish Trust Deed £295
(total contractual repayments)
* Subject to creditor acceptance
* Payment subject to individual circumstances
* Credit rating may be affected
* Fees apply, subject to individual's circumstances. For more information on our fees click here