What is Sequestration?
Sequestration is the Scottish equivalent of bankruptcy, and is only available if you live in Scotland, or have done so in the last year. It is a formal insolvency solution for those who are unable to pay back their debts in a reasonable time. Sequestration involves working with a licensed Trustee, who is given authority over assets- such as property and vehicles- which may be sold in order to pay back debts. If you have disposable income, your sequestration may also require you to pay a monthly contribution towards the repayment of your creditors, based on what you can afford. At the end of sequestration, all unsecured debt is written off.
What happens during Sequestration?
To be eligible for sequestration, you must have £3,000 or more worth of debts. To begin the sequestration process, you must not have been made bankrupt in the past 5 years, and be able to produce either a Certificate of Sequestration from an approved debt advisor, a Charge for Payment, or a Summary Warrant to recover taxes or rates which you owe. Applications are handled by the Accountant in Bankruptcy (AIB), Scotland’s insolvency service. Applying for sequestration also incurs a fee of £200.
Once an application for sequestration has been approved, you will be assigned a trustee, who proceeds to take control of your assets and communicate with creditors on your behalf, as well as working with the AIB to decide whether you will pay monthly contributions, and if so how much. The trustee will also discuss with you whether your assets need to be sold, and handle their sale if this is deemed necessary.
How long does Sequestration last?
Sequestration itself lasts for 1 year. After this period, if you are not also paying monthly contributions, your debts will be written off. During this year you will be unable to borrow more credit, and must inform the IAB of any changes in your circumstances. If you are also making monthly contributions, these may continue for up to 4 years after you have been discharged. A record of your sequestration also remains on your credit file for 6 years, and your name and address is included on the public Register of Insolvencies (RoI) for 5 years.
Advantages of Sequestration
The main advantage of sequestration is that it allows you to become debt free in a relatively short space of time- as little as a year. The process also allows all your unsecured debts to be written off, and since it is legally binding, creditors can take no further action against you. They are also unable to contact you- instead communicating through your trustee- meaning no further harassing letters or phone calls. In addition, if you are receiving welfare benefits, these are not counted as part of your income when monthly contributions are being decided upon.
Disadvantages of Sequestration
The main disadvantage of sequestration is that your assets are likely to be lost, which may include your home (although this is uncommon and a last resort), vehicle, or other valuable possessions such as jewellry. Additionally, any bonuses, inheritance, or windfalls you receive whilst you are going through sequestration must be used to pay creditors. Sequestration can also affect which careers you are able to work in- you may be unable to act as a company director or work in financial services. Your credit rating will also be affected for around 6 years, making further borrowing more difficult or expensive.
Alternative Options to Sequestration
A protected Trust Deed is an alternative which also involves transferring control of your assets to a trustee, but without declaring bankruptcy. Trust Deeds are only available if you live in Scotland however, and you may wish to consider another alternative to bankruptcy, such as an Individual Voluntary Arrangement (IVA) or Debt Management Plan (DMP).
If you think that sequestration could be the right solution and you want to know more, contact Creditfix to speak with one of our advisers and see what’s best for you and your situation.
Call us now for immediate and confidential free debt advice on 0808 208 5198 or complete the form. We can start to work through our debt problems as soon as you contact us.