What is a Sequestration?
A sequestration is the Scottish equivalent to bankruptcy however there are certain differences in the procedure and restrictions imposed on those who have been sequestrated.
It is a procedure which should always be considered as a last resort and entered into with a great deal of thought. We would encourage all individuals, sole traders and partners experiencing financial difficulties to get in touch with us as early as possible so that we can explore all of your available options. Unfortunately, as is always the case – the longer that financial difficulties are ignored, the fewer options remain available which may ultimately result in sequestration being the only remaining solution and often an unfavourable one.
In a nutshell, through sequestration all your debts are written off (see below) however all of your assets become property of your Trustee who will sell them, including any interest you have in your home, to generate funds to be paid to your creditors.
Who can benefit from Sequestration?
Sequestration is best suited to those individuals who essentially have minimal to lose through the procedure. It allows individuals to make a fresh start, resetting your financial position so that you effectively have no more debt however all of your assets will no longer belong to you.
If you own your own home or a share of equity in your home, have savings, own an investment property, a vehicle which is not considered to be of reasonable value, or own any other assets of value which you do not want to be sold to someone else then sequestration may not be the right option for you. Similarly, if you have a pension, then expert advice should be sought as to whether or not sequestration would be the best solution to deal with your debts.
It is important to note that certain jobs will be affected due to sequestration – such as if you are an accountant, solicitor, member of parliament or local authority, police or Justice of the Peace your ability to continue to work may be affected.
It may be that another Scottish procedure is more suitable to your circumstances such as a PTD, DAS or MAP. It is therefore very important that you seek proper advice before going down the sequestration route.
What are the effects of Sequestration?
When you enter sequestration, everything which you own (other than tools of trade and household effects of a reasonable domestic need and value) vest in your Trustee. This essentially means that you lose control of all of your assets, which become the responsibility of your Trustee who has a duty to realise (or sell) your assets for the benefit of your sequestration estate.
Your name will be included in the Register of Insolvencies as Sequestrated, for a period of five years, and also be advertised in the Edinburgh Gazette (a publication only usually read by banks, finance companies and professional services) in addition to potentially being advertised in a local paper if this is thought necessary.
Your sequestration would be handled initially by what is known as the Accountant in Bankruptcy (AIB). You will usually be called into the AIB’s office (which will be the closest AIB’s office to where you live) for an interview to explain your current circumstances and provide further details on your assets and liabilities. Subject to certain criteria, the AIB may then approach an independent Insolvency Practitioner, to be appointed as Trustee of the sequestration estate.
There are a number of restrictions which are immediately imposed on you as soon as you become sequestrated, these restrictions apply to you until you are discharged from sequestration – generally, so long as you cooperate with your Trustee, you will be discharged twelve months from the date of your sequestration. Once discharged this does not mean that you get your assets back – they stay with your Trustee to be realised for the benefit of your creditors. Your sequestration continues until your Trustee has completed his job.
One of the restrictions imposed is that you are not able to obtain credit in excess of £250 without first advising the lender of your sequestration – this relates to both personal credit and trade credit.
You are also prevented from acting as a Director of a limited company.
You may not trade in any business other than your own name, unless you inform those who you deal with of your sequestration.
Certain jobs / professions do not allow you to continue in your position if you are subject to sequestration / bankruptcy.
Your credit rating, which would no doubt be poor in the period prior to becoming sequestrated, will continue to be affected for a further six years.
If you have any surplus income, you would likely be required to make payments to your Trustee for a period of four years.
What debts are written off through Sequestration?
All of your unsecured debts outstanding at the start of your sequestration are written off as part of the sequestration process. Examples of unsecured debts include: –
• Credit cards
• Store cards
• Bank accounts
• Unsecured bank loans
• Other unsecured loans
• HM Revenue & Customs debts
• Shortfall due to finance / hire purchase
companies on sale of an asset
• Money borrowed from individuals
Depending on what you want to do / can afford to do will determine what happens with your secured debts. For example, if you want to continue to live in your home or want to keep your car which is subject to hire purchase you will need to continue to pay your mortgage or the HP company, respectively. If you do not want to or can’t, then your mortgage company or HP company will take steps to repossess your house or car – if there is any shortfall then this will be their claim in your sequestration and if there is a surplus then this will be for the benefit of your sequestration estate.
There are certain debts which are not written off through sequestration, examples of these are :-
- Child Maintenance
- Fines i.e. parking fines
- Debts incurred through illegal/fraudulent behaviour
We ask that you let us know absolutely everyone who you owe money to so that way we can review your financial position and provide you with the best advice. We will let you know which of your debts/creditors fall into which category.
How do I apply for Sequestration?
If you are thinking of applying for your own sequestration, please ensure that you get some professional advice before you continue. Places such as the Money Advice Service, which provides free and impartial advice, set up by the UK government are well placed to assist and you can find their website by clicking the link https://www.moneyadviceservice.org.uk/en.
To self-sequestrate, you submit your application to the AIB, providing full disclosure of your personal financial position. The AIB will then review your application who will make a decision as to whether or not you should be sequestrated, usually within 5 working days but this could be longer depending on whether the AIB needs to obtain further information from you before making a decision.
You will also need to pay a fee of £200 to the AIB when you submit your application.
How does someone Sequestrate me?
Anyone who you owe £3,000 or more can make a creditor’s application to Court for your sequestration. They must be able to prove that you are insolvent and this can be proven in one of two ways. They would need to demonstrate that you are what is called Apparently Insolvent, which is effectively a legal term which means you cannot pay your debts.
This is always a last resort for your creditors and the decision is usually only taken once they have tried to work with you to reach some form of repayment / settlement plan. It is a costly process for a creditor to petition for your sequestration and there is no guarantee that this would result in any money being paid back to the creditor through the sequestration process – especially if you own minimal assets.
Interested? Get in touch today!
So, you are interested in sequestration and you think that it might be the right option for you.
As mentioned above, sequestration is a very serious process and should only be entered into after you have taken appropriate advice and should be considered as a last resort.
We completely appreciate that sequestration is a scary thought and you likely do not have the experience or knowledge to fully understand whether it is in fact the best option for you. At DebtChampion we are committed to ensuring that the right advice is always provided. If you are unsure whether sequestration is right for you or whether you may be better suited to another solution for dealing with your debts, if you use our Save Me request form, this will allow us to give you best advice, by phone at a convenient time for you.
Alternatively, you can give us a call on 0808 164 3750 (Freephone) and we will be happy to have a chat with you.
There are many firms in the market place who charge fees for assisting people self-sequestrate. We would recommend that before you go down the route of paying someone for such service that you have a chat with one of the free advice services such as the Money Advice Service which provides free and impartial advice, set up by the government – you can find their website by clicking the link https://www.moneyadviceservice.org.uk/en.