Sequestration is the Scottish legal term for bankruptcy in Scotland. It should always be considered as a last resort as it has serious long-term implications.
How long does sequestration last in Scotland?
You will typically be discharged from sequestration in Scotland after 12 months, although your Trustee may realise your assets for a further two years.Sequestration is a legal term for bankruptcy in Scotland. It is an extreme debt solution that should only be considered as a last resort if you’re unable to keep up with monthly payments towards your debt.
It’s available to people living in Scotland who can’t afford to pay debts over £3,000. Alternatively, a person or company you owe money to, also known as a creditor, can apply to the Sherriff Court to declare you bankrupt through sequestration if you owe £10,000 or more.
During the sequestration process, an Insolvency Practitioner, also known as a Trustee, will take control of your assets to deal with the creditors you owe money to on your behalf.
Assets can include:
The Trustee may also ask for a regular contribution from your income during the sequestration period – typically four years.
An application for sequestration in Scotland can be made to the Accountant in Bankruptcy (AiB) if the creditors owed £1,500 or more agree with the application. If this isn’t possible, you can obtain a Certificate of Insolvency from an Insolvency Practitioner or an approved money advisor. The certificate is valid for 30 days from the date it’s granted.
You’ll be put in touch with a court-appointed Trustee to manage the sequestration process. They’ll be given the power to assess the value of your assets, your income and your expenditure. The Trustee is then responsible for managing payments to creditors.
When you’re declared bankrupt, creditors are prevented from taking legal action against you. However, it’s important to be aware that it can take up to 60 days for them to be informed of your sequestration.
You should also be aware that you may still have to make regular payments towards your debt for up to four years after you’re discharged depending on your affordability.
You must meet certain criteria to be eligible for sequestration in Scotland. To make an application for sequestration you must:
If you’re living with debt problems and don’t see your situation improving in the near future, you may consider personal bankruptcy.
Bankruptcy can be away to deal with unsecured debt if you are experiencing financial difficulties.
You may consider bankruptcy if:
It’s big decision that comes with serious consequences so it’s important to further advice before committing to bankruptcy.
It’s also important to be aware that if you owe debts between £1,500 and £25,000, have no disposable income and no assets, such as a property, you can apply for a shorter form of bankruptcy called the Minimal Assets Process (MAP).
Bankruptcy can be away to deal with unsecured debt if you are experiencing financial difficulties.
If you decide to go ahead with the sequestration your Trustee will submit your application to the AiB.
It’ll be then down to them whether to grant the sequestration and if successful appoint a Trustee to manage the the arrangement for you. This is usually your insolvency practitioner but it can differ on occasion.
You’ll then make a £200 application fee payable to the AiB to be sent alongside your application as well as a Certificate of Sequestration.
You’ll then be expected to surrender any assets (items of value that you own) raise money to to go towards the debt you owe.
This will be arranged and managed by your Trustee. They will also make sure creditors are made aware that you are now sequestrated and to contact them instead. This will prevent creditors taking legal action against you and stop constant phone calls chasing for money you don’t have.
Permitting you stick with the terms and conditions of your agreement you’ll be discharged after 12 months.
However, of you have been asked to sign a debt contribution order (DCO) you’ll continue to make affordable monthly payments for four years.
You should also be aware that your Trustee may remain ‘in office’ for a further three years after your discharge in some instances. If this is the case you’ll be asked to declare any new assets or extra income as they may still be used towards paying your debts.
The bankruptcy process in Scotland comes with a price tag attached.
It costs £200 to apply for sequestration. A request can made to the Accountant in Bankruptcy permitting you gave the agreement of credits you owe more than £1,500 or have a Certificate of Sequestration.
When you enter a sequestration you will be appointed a Trustee to manage your arrangement. However, your Trustees fees will be paid with the money that is brought into the sequestration though the sale of your goods and monthly payments.
These monthly contributions will be agreed when you sign your sequestration and you will not be expected to pay more than that.
Creditors included in the arrangement will be given the opportunity to object to the amount payable to the trustee’s fees at an annual review of the sequestration.
The bankruptcy in Scotland process typically lasts for one year permitting you have kept to your contractual obligations set out by the Trustee.
However, it doesn’t always end there.
In some instances, if you receive a regular income, you may be required to make a debt contribution order (DCO) for four years.
It may also be extended if you haven’t stuck to the terms and conditions of the agreement.
Yes, your credit rating will be affected by bankruptcy.
Credit reference agencies, such as Equifax or TransUnion, will hold details of your sequestration on your credit file for six years from when it was granted.
The sequestration details will also be included in the Register of Insolvencies for five years.
If you rent your home it’s important to be aware that applying for bankruptcy may impact your tenancy agreement.
You should check your agreement for a bankruptcy clause that would allow your landlord to end the tenancy if you enter sequestration. It’s also important to note you’ll need to continue to pay rent during your bankruptcy too.
If you’re a homeowner and there is equity in your property you’ll likely need to sell it to release funds towards your debt. If you have a joint mortgage your Trustee will usually offer to sell your share to the other person. If that person disagrees the Trustee can apply to the court to force a sale.
If you have a family living in your home then the Trustee must also apply for a court order to sell the house. The court could decide the sale has to be delayed by up to three years or prevent it entirely. This is typically only the case in very specific circumstances such as having a home that is adapted for a disabled child, for example.
It was literally the best decision of my life, and it has actually changed my life, cheesy as that sounds, it has changed my life.
Paige , IVA Customer
Yes you can still apply for bankruptcy with the help of debt advice from an approved advisor.
If you’re a sole trader the Trustee can do the following:
Bankruptcy in Scotland should always be considered as a last resort.
If you’re worried about unsecured debts you should speak with a professional debt expert to find out what other debt solutions may be available to you.
Alternatives to sequestration include:
If you’re able to repay your debt in full you may consider a Debt Arrangement Scheme. This will allow you to set up a Debt Payment Programme (DPP) that will allow you to pay your remaining debt with an affordable monthly payment in a reasonable timeframe.
You won’t be required to sell off your belongings or property.
A Trust Deed is an alternative to bankruptcy. You must owe £5,000 or more of unsecured debts such as personal loans, council tax or credit cards.
It will still be managed by a Trustee and you will pay one affordable monthly payment towards your debt for four years. Any interest and charges will be frozen during this time and creditors can’t take legal action against you.
Your employment contract also isn’t likely to be affected in the same way it could be with bankruptcy.
You may also choose to speak with your creditors directly to arrange an informal repayment plan.
This can be a way to manage unaffordable debts but there’s nothing to stop them taking action to recover the debt owed.
You can do this on your own or speak with someone at your local Citizens Advice to do this for you.
You'll have less contact with the people you owe money to. They can no longer take legal action against you and the constant phone calls to pay what you can't afford will stop as your Trustee takes over.
You may wish to consider applying to the AiB for a moratorium before applying for bankruptcy. This can last for six months and during this time creditors can no longer take steps such as arresting your wages.
It can also put a stop to enforcement and can prevent bailiffs from recovering debt owed.
Most unsecured debt will be cleared when your bankruptcy is complete and you won't need to repay them. You should be aware that debts like student loans and criminal fines won't be written off.
You may still need to make regular contributions towards your debt if you're deemed has having enough money to do so. If this is the case you'll make payments for four years. If you refuse, the Trustee can arrange for your employer to take the funs directly from your wages.
Your credit rating will be negatively affected for six years and can make borrowing money more difficult in the future.
Some employment contracts state that you cannot be declared bankrupt and you may be dismissed. This may happen if you work in financial services, for example.
If your self-employed you might not be able to run your business.
If you purchase a new property or come into new money within four years of the bankruptcy, such as inheritance, it may be claimed by the Trustee.
If you’re considering personal bankruptcy in Scotland because you owe unsecured debts it’s vital you speak to a professional first. You should seek free advice to find out if it’s the right solution for you before committing. At Your Debt Expert we specialise in helping people with a wide range of debt solutions.
Contact us today on 0800 082 8086 for more.
Advice and support is also available at Money Helper.
*A debt write off amount of between 25% and 75% is realistic, however, the debt write off amount for each customer differs depending on their individual financial circumstances and is subject to the approval of their creditors. The example provided has been achieved by 10% of our IVA customers in the last 12 months.
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