When is your Sequestration discharged?
Sequestration is an insolvency solution in Scotland. A Trustee gains control of your assets and manages your finances so that you repay as much of your debt as possible before the end of the Sequestration. Simply put, your sequestration is discharged after 12 months. However, repayments can last up to 4 years, and effects on your credit score can last 6 years. These different impacts of Sequestration make understanding the length of sequestration a little more complicated
Your Trustee is given control of your assets during sequestration. This means they are able to sell items of value that you own. This includes your home, if there is sufficient equity, and your car, if it is worth more than £3000. It may be possible to remortgage your home or trade in your car to release equity, rather than selling it.
This period of sequestration lasts 12 months. After this, your sequestration has officially ended and is ‘discharged’. This is the most often quoted length of time that a sequestration lasts. Once you are discharged, your assets are not untouchable, however. New assets that you gain after your sequestration can be claimed by your Trustee for your creditors for up to three years. Inheritance, for example, or winning the lottery, may be claimed by your Trustee for your creditors. It is worth keeping this in mind when you plan your finances after Sequestration.
Trustees are also required to assess your finances to determine if you are able to make regular repayments called an ‘Income Payment Agreement’ (IPA). If you do not agree to the IPA, the sheriff can make an ‘Income Payment Order’ (IPO), which will make you pay this amount. Your IPA or IPO is calculated using your income and expenditure. If your surplus income, your income after all essential expenditure such as rent, food, and utilities has been deducted, is above £20, it is likely that your Trustee will ask you to pay this amount as part of an IPA. Your situation is re-assessed every year to ensure your IPA is the right amount and it can go down as well as up.
This IPA or IPO will last for 4 years. This is 3 years longer than the sequestration officially lasts. It is important that you realise that you might still have repayments after your sequestration is discharged as it will affect your financial planning. You are unlikely to have access to your surplus income to contribute to savings, spend on personal luxuries, or other projects for 4 years in total following your successful application for sequestration.
Your Credit Report
Sequestration is recorded on your credit report for six years, and this will affect your ability to take out credit. This the longest impact of Sequestration. Credit Rating Agencies compile your report in order to assign you a credit rating. This is used by lenders to assess how reliable and financially stable you are so that they can accept or deny an application for credit and set the interest rates of those who do approve.
In terms of planning your financial future, if you know that you want to take out further credit, for example you may aim to take out a mortgage in the near future; it might be best to, at the very least, wait six years until your sequestration is removed from your credit file. Remember: it is often a legal requirement for you to disclose your sequestration. You may find your application rejected if you don’t. You may also want to rebuild your credit score by taking out small amounts of affordable credit and repaying it instantly, such as through using a credit card in a sustainable way.