UK Money Blog | Saving, ISAs, Apps, Calculators, Making Money
Sequestration is the term used for bankruptcy in Scotland, a similar procedure to that in England, Northern Island and Wales. If you are struggling to repay outstanding unsecured debts and have exhausted all your options, entering sequestration as a last resort may help you resolve mounting debt levels. This procedure involves transferring the ownership of assets to a trustee to help raise funds to repay creditors. The trustee will manage your financial affairs and the bankruptcy process with the aim to help you resolve debts and satisfy creditors, writes John Baird of Scotland Debt Solutions, a network of debt solution experts with five offices across Scotland, offering Sequestration support.
This process can help you write off debts that would otherwise take years to settle which makes it an appealing option; however, your personal assets will be at risk. Sequestration is available in Scotland and can only be administered if you can’t keep up with payments within the given timeframe for the likes of personal loans, credit cards and store finance.
When applying for Sequestration, you can submit a debtor application if:
- Your unsecured debt level is £1,500 or over
- You haven’t entered sequestration over the last five years
The application typically takes five working days to be processed and you do not need approval from creditors to enter sequestration. A creditor can also submit an application for sequestration to request partial or full payment, however your debt will typically be written off following your discharge from sequestration.
Appointment of Trustee
When entering sequestration, your financial affairs, including assets will be managed by a trustee. A trustee is appointed as soon as you enter the process and this can either be your insolvency practitioner or the court may appoint the Accountant in Bankruptcy (AiB) to be your trustee.
The Bankruptcy (Scotland) Act 2016 states that the trustee will have the following functions:– Recover, manage and realise the estate of the debtor
- Distribute the estate among creditors according to what they are entitled
- Ascertain reasons for the debtor’s insolvency, including liabilities and assets
- Maintain a record of the sequestration process, including accounts
- Supply Accountant in Bankruptcy with the information necessary to enable discharge
The trustee will function as the mediator between the debtor and creditors and will reasonably negotiate a repayment plan which is fair to all parties. Following the instruction of your sequestration, the trustee has 60 days to inform creditors of your financial position, opening the lines of communication.
When will I be discharged from sequestration?
This can vary as if you are uncooperative, your trustee can defer your discharge date up to two years at a time. Depending on your level of outstanding debt and the assets under your ownership, you can be discharged from sequestration anytime between 6 months or 4 years. If you are discharged early, you may need to continue making contributions to your estate for a number of years thereafter, including paying off debts that are not covered by the bankruptcy. Depending on your agreement, you are usually released from your debts after being discharged from sequestration.
Will I lose my assets in sequestration?
The trustee will manage ownership of your assets to raise funds for creditors to the fullest extent. Your personal assets will be factored in to be sold to creditors, including your house and car. The trustee will try to come to a fair outcome for both parties, taking into consideration whether you need the likes of a car for work purposes. However, if your car is worth more than £3,000, the trustee will look at releasing the asset to raise money for creditors. If it’s not worthwhile to release equity from your property due to the sheer cost of raising the funds, the trustee will look to other means to raise money from your estate.
What debts can’t be written off?
Selected debt is excluded from the sequestration process including student debt, court fines, student loan and child maintenance payments.
Minimal Asset Process (MAP)
If you have minimal income and assets, you may consider bankruptcy through the minimal asset process (MAP). In the event of a MAP bankruptcy, only the Accountant in Bankruptcy can be appointed as your trustee. This process is a bankruptcy procedure available in Scotland for the following individuals if:
- You owe £1,500 to £17,000 in unsecured debt. Any assets under the ownership of the individual should be worth less than £2,000, with no single asset to be worth over £1,000
- The Common Financial Tool, as established by the AiB to assess household income and expenditure across all statutory debt solutions should determine that you’re unable to make affordable contributions to bankruptcy. You can also enter the minimal asset process if your income is entirely made up of benefits
- You are not a property owner
You are unable to enter this process if you have been declared bankrupt in the past 5 years or 10 years in the case of a MAP bankruptcy. After being discharged from the MAP, you will be restricted from obtaining credit for a period of 6 months.
What are the advantages of sequestration?
Entering sequestration which is a bankruptcy process can help you actively resolve your unsecured debts and start afresh as most debts are written off after being discharged from sequestration. As the process is managed by a trustee who is also in control of your assets, they function as a mediator between the debtor and creditors which means that they will be responsible for settling disputes and dealing with creditor correspondence.
What are the disadvantages of sequestration?
One of the main disadvantages of sequestration is that it will affect your credit rating for a period of 6 years which can hinder your chances of accessing loans, mortgages, finance, etc. Whilst being undischarged, you will not be able to access credit over £2,000 and there is also a 6 months restriction for accessing finance under a MAP bankruptcy. Whilst in sequestration, you will be banned from acting as a company director and actively involving yourself in any business dealings, including the management, formation and active promotion of a limited company without express permission from the court.
If you are struggling to pay back your debts within the given time frame, the personal insolvency process of sequestration may be the best solution to help pave the path to a debt-free future. If you are off track with your debt repayments due to unaffordable payments, a Debt Arrangement Scheme may be better suited. Alternatively, a Trust Deed offers a similar option which restructures your debt repayments over a short period of time, eventually writing off any outstanding debt. It’s vital that you take action when it becomes apparent that debt repayments are becoming a hardship in order to protect yourself from the accumulation of interest and late payment penalties.