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20.04.2018

Sequestration vs Trust Deeds

The two most notable formal debt solutions in Scotland are ‘Scottish Bankruptcy’, which is formally known as ‘Sequestration’ and Trust Deeds. If you are resident in Scotland and are considering different debt solutions, it might be useful to see these two compared. Sequestration means that a Trustee gains control of your assets to provide payment for your creditors, as well as managing your surplus income. A Trust Deed, on the other hand, involves a monthly payment based on your income and expenditure for a minimum of four years.

Sequestration and Trust Deeds both:

  • Constitute formal, legal solutions to your debt problems
  • Stop your creditors from contacting you
  • Stop your creditors taking legal action against you. Notably, a Trust Deed prevents creditors applying for sequestration against your wishes. Both prevent creditors from taking you to court
  • Result in some of your debt being written off
  • Remain on your credit report for 6 years, which can impact your ability to take out further credit
  • Could impact your employment – it is important to check your employment contract for restrictions related to bankruptcy or insolvency
  • Are likely to involve four years of payments to a Trustee, which is then distributed among your creditors.

Sequestration:

  • Is likely to result in the sale of your most valuable assets. This could include your home or car
  • Has your debts officially written off after one year, but repayments are likely to continue for another 4 years
  • Makes your Trustee the legal owner of your property, as well as the person in charge of your surplus income.
  • Could be instigated by creditors, rather than by yourself
  • Requires a minimum debt of £3000. ‘Minimum Asset Process’ Bankruptcy only requires a minimum of £1500, but has other, stricter eligibility, such as not owning a home
  • Costs £200

Trust Deeds

  • Allow you to keep your property as your Trustee does not gain legal control of them. It is possible that you may be asked to remortgage your home as part of the Trust Deed agreement, but this will never be done without your consent
  • Write off your remaining debts after 4 years of repayments
  • Are flexible and allows for changes in circumstances through payment breaks and adjustments of your payments as your income and expenditure increases and decreases
  • Have no extra fees. Your Trustee is paid as part of the monthly affordable payments
  • Can only be instigated by you. Your creditors cannot force a Trust Deed on you
  • Requires a minimum of £5000 of debt

Sequestration can be a disruptive and difficult process because you give control of your assets to a Trustee. Therefore, if you have assets, a Trust Deed may be a preferable solution. Sequestration could be helpful for those without assets, such as those who don’t own their homes, although there is still a cost of £200. It is also an option for those who are ineligible for a Trust Deed, such as those with less than £5000 of debt and those without a surplus income as they cannot apply for a Trust Deed so may need sequestration. If you have no assets and don’t have a surplus income, you might want to consider the Minimal Assets Process Bankruptcy.

To find out more about the sequestration process, click here.