If you live in Scotland and your debts have become too large to manage, you might be considering sequestration. A form of insolvency, it might give you the chance to start afresh financially. Although sequestration has a certain stigma attached to it, meaning it’s often viewed as a last resort, it can be a practical solution to debt problems and it has a number of potential benefits.
As with any form of insolvency solution, sequestration can have a major impact on your life for many years to come, so you should always review your options in detail and take expert advice before making any decisions.
Before you agree to pay anything to your creditors, you may be able to challenge them to reduce your debt. This is where CLB come in. We will provide you with the specialist legal advice you need to ensure you’re not treated as a commodity by those who purchase and sell your debts.
What is sequestration?
In Scotland, sequestration is the legal word for bankruptcy. It’s a type of insolvency that may be suitable for you if you’re unable to pay off your debts in a reasonable time. Sequestration works differently to bankruptcy in England, Wales and Northern Ireland and is administered separately. A formal process, it involves being declared bankrupt by a court or the Accountant in Bankruptcy.
When you are bankrupt, your finances are controlled by a person referred to as a trustee, and it is their job to control your assets with the objective of repaying as much money as possible to your creditors. You can apply for sequestration if you’re unable to repay your debts. Or, if you owe £3,000 or more, your creditors may apply to make you bankrupt, potentially against your will.
Your trustee will scrutinise your income and expenditure to assess whether you have any income available to service your debts. If you do, you will usually be required to make contributions towards your debts.
There are also clearly defined rules regarding property. If you’re renting a home, you will need to continue to pay your rent during your bankruptcy. If you own your home and there is some equity remaining in it, it will usually have to be sold. The proceeds will then be passed on to your creditors. If you own the property with another person, the trustee will typically offer to sell your share to them. If the other party is unwilling or unable to buy your share, the trustee might apply for a court order to sell the house. If you have family living with you in your home, such as children, a spouse or a civil partner, the trustee must apply to the court for an order to sell the property. The court may rule against selling the home, or to delay the sale for as long as three years. This is only likely in special circumstances, for example if you have a disabled child in your home and the property has been adapted for them.
If you are self-employed and work as a sole trader, the trustee may opt to take over the running of your business or they may grant a licence to someone else to do this. Alternatively, they can sell the organisation as a going concern, or they can close it and sell off the assets.
While the trustee is authorised to sell some of your possessions, you will be able to keep many of them. For example, you can usually hold onto many household goods, as well as items that you need for work – such as tools or your van or car. You may also be able to keep your car if you have a disabled child and the vehicle is worth less than £3,000.
To be made bankrupt, you have to pay a fee to the Accountant in Bankruptcy of £200. Or, if you apply for minimal asset process (MAP) bankruptcy (which can be simpler than sequestration), the fee is £90.
Can I apply for sequestration?
Now you’re familiar with sequestration and its meaning, but is this option available to you? You may be eligible for this type of insolvency if you have no money to service your debts, or if you have so little that it will take you many years to clear what you owe. In addition, you must owe in excess of £3,000 and live in Scotland or have done so at some time over the last 12 months. You must also not have been made bankrupt in the past five years.
You can apply for this type of bankruptcy if you have received a certificate of sequestration from an approved debt adviser or if you have had a charge for payment served on you and the 14-day period allowed for payment has elapsed without you making a payment.
If your debts are between £1,500 and £17,000, you have few assets and no disposable income, you might be eligible for a MAP bankruptcy.
Is it the right option for me?
When you’re deciding if sequestration is the right option for you, it’s important to be aware of the advantages and disadvantages of this approach.
The advantages include that fact that:
- You will be debt-free relatively quickly (bankruptcy usually comes to an end after six months or a year, depending on the type of bankruptcy)
- Your unsecured debts will usually be written off, although you may need to make a contribution
- Your creditors must stop contacting you and they can’t chase you for money.
The disadvantages include the fact that:
- If you have assets such as a car or house, they may be sold to release funds to repay creditors
- There may be implications for your job (for example, you won’t be able to act as a company director for the duration of the bankruptcy)
- Your credit rating will be negatively impacted for up to six years
- You may be required to do training in financial education.
It’s important to note that there are alternatives to bankruptcy that may suit your needs better. For example, you might benefit from a Debt Arrangement Scheme, a protected trust deed, a voluntary agreement drawn up directly with your creditors or a debt consolidation loan.
Always seek advice before applying for sequestration
If you’re considering sequestration, or any of these other debt solutions, make sure you get expert advice first. The decisions you make will have a big impact on your day-to-day life and on your future, so it’s important to get them right.
Before committing to any insolvency solution, it’s imperative to make sure you are aware of your rights when it comes to debt. You shouldn’t pay your creditors anything unless you’re 100% satisfied that they can prove you owe them the amounts they are claiming. Acting on your behalf, the experts at CLB can ask companies that are demanding money from you to prove that the sums they are claiming are in fact due. Drawing on our knowledge of consumer protection legislation, we can challenge creditors’ claims. Our approach has saved our clients a combined total of over £2.5 million. By coming to us, you can ensure your rights are protected and you don’t pay any more money than you need to.