Sequestration & Bankruptcy Advice In Scotland
What is Sequestration?
Bankruptcy, or sequestration as it is known in Scotland, is one of Scotland’s two types of personal insolvency: Protected Trust Deeds being the other.
Both types are formal, but whereas a Protected Trust Deed is always voluntary, sequestration can be involuntary and can be forced on you by one of your lenders. When this is happening, you must seek expert advice immediately.
Sequestrations are more rigid than protected trust deeds, which involve an agreement between you and your creditors and therefore can be more flexible and tailored to your needs.
However, most sequestrations in Scotland are voluntary and debtors themselves choose to go bankrupt. When debtors apply themselves this does not involve the courts but simply requires an application being sent to the Accountant in Bankruptcy office, which is a Scottish Government Executive Agency.
How does Sequestration work?
If you apply for bankruptcy you are saying you no longer are able to pay your debts as they fall due. That means the monthly contractual payments that are owed to your creditors are greater than the amount of money you have available after you have paid for your essentials.
You have to be careful however, as although you cannot pay your debts as they fall due, this may not mean you are absolutely insolvent. This means if all your assets were sold, there may be sufficient monies available to pay off your debts.
This is why seeking the advice of a licensed insolvency practitioner prior to applying is important. If you don’t and you get it wrong, you may lose your home and other valuable assets you would like to keep hold of.
When you go bankrupt, you effectively transfer all your assets and property (with some exceptions) over to a licensed insolvency practitioner or the Accountant in Bankruptcy, who is a Scottish Government civil servant. Their job is to realise the value of your assets for the benefit of your creditors. This may mean they will need to be sold, but not necessarily: if someone else you know is able to pay for them, you may be able to keep them. This is useful when you are a home owner and have equity.
The trustee must also carry out an assessment of your personal finances and where possible ask you make a contribution to your bankruptcy from your income. This normally will be for three years. They will also ask you to sign an Income Payment Agreement, a legally binding agreement under the Bankruptcy (Scotland) Act 1985. If you refuse or don’t abide by the Income Payment Agreement, they can apply to the Sheriff Court for an Income Payment Order requiring you to make such a payment. Failure to do so is a criminal offence and may result in a fine or a custodial sentence.
Bankruptcy is also accepted as being more damaging to your credit rating than any other debt solution and may prevent you getting a bank account. Certain types of jobs do not allow you to go bankrupt and where this is the case, you may lose your job by applying for it.
Bankruptcy can be a suitable option for many debtors where they cannot afford to make a sufficiently good offer to their creditors in a Protected Trust Deed, but will not be as flexible. They key is to ensure it’s the correct thing to do and then co-operate with your trustee.
If you want more advice on sequestration it is important you first seek expert advice, which you can by calling 0808 20 20 225. Our debt experts will explore all your options, including other debt solutions.
Why would you apply for Bankruptcy?
You may apply for bankruptcy if: -
- You cannot repay your debts
- Other debt solutions have not helped
- You are not eligible for any other debt solution
Sequestration can be avoided if advice is sought early on - Call 0808 20 20 225 for sequestration advice, support and guidance or contact us using this form.
Advantages of Sequestration
- Your Creditors will be unable to enforce legal action against you
- You will normally be discharged from any further liability for your debts after one year
- Income from benefits will not be affected
Disadvantages of Sequestration
- It will be on your credit reference file for 6 years
- You may have to surrender some assets, including your home and car
- Certain types of employment do not allow it
- You may have to assign future disposable income to your Trustee for up to three years
- Not all debts are discharged in bankruptcy, such as student loans and fraudulent debts.