May not be suitable in all circumstances. Fees apply. Your credit rating may be affected.
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Scottish Bankruptcy
Sequestration is the Scottish legal term for bankruptcy. Sequestration can be an appropriate solution for individuals with unaffordable debts and is also used by creditors who take legal action against individuals for repayment of debts. Do not delay in taking advice if creditors have commenced legal action against you or you believe that Sequestration may be a suitable solution for you - we are here to help.
What is Sequestration?
Sequestration is the Scottish equivalent of bankruptcy and is an option for you if you are unable to pay your unaffordable debts as they fall due and can allow for up to 100% of your debts to be written off.
A Trustee would take control of your assets and collect a contribution from your income, if applicable, for a 4 year period. You must take advice from an approved money adviser (such as an insolvency practitioner at Harper McDermott) prior to you applying for sequestration.
How do I apply for Sequestration?
The various methods for applying for sequestration in Scotland are:
- Certificate for sequestration, issued by an approved money adviser, e.g. Harper McDermott, when they have assessed your financial position and you are unable to pay your debts as they fall due
- Apparent insolvency e.g. having an expired charge for payment (issued by one of your creditors)
- Minimal Asset Process (MAP) – click on this link for more information relating to MAP
Regardless of your route into bankruptcy, all involve taking advice from an approved money adviser and making an application to the Accountant in Bankruptcy (AiB).
The application carries a fee of £150, paid to the AiB (can be paid in instalments) however if you are in receipt of certain prescribed social security benefits (e.g. Universal Credits, Child or Working Tax Credits) or you are assessed as having no surplus income then there is no application fee payable.
The above routes are for an individual to make an application for bankruptcy, it is also possible for a creditor to take legal action against an individual that would end with the person being declared bankrupt.
What are the qualifying criteria to apply for Sequestration?
To apply for Sequestration in Scotland, you must meet the following criteria:
- You currently live or have lived in Scotland in the last 12 months, or you have a place of business in Scotland
- You have unsecured debts of at least £3,000
- You have not been made bankrupt in Scotland within the last 5 years
- You must pay the £150 application fee*
- You must have received advice from an approved money adviser
- You are apparently insolvent or have a Certificate for Sequestration, and do not qualify for MAP
*If you are in receipt of certain prescribed social security benefits (e.g. Universal Credits, Child or Working Tax Credits) or you are assessed as having no surplus income then there is no application fee payable.
How does Sequestration work?
If you decide that Sequestration is the best option to deal with your debts, you would pay the application fee* and send the application form to the AiB.
An experienced debt adviser at Harper McDermott will help you understand if Sequestration is an option that is suitable for you and then advise you on how you can make an application.
Your application will be reviewed by the AiB and, assuming it is accepted, your Sequestration will be awarded. Once awarded, you will be protected from creditors taking legal action against you for recovery of debts owed to them.
Your Trustee will then carry out their duties, primarily being to collect a contribution from your income for a 4 year period and realising any assets for the benefit of your creditors. Your contribution is set at the application stage and is reviewed every 6 months.
You are normally discharged from bankruptcy after 1 year, subject to your co-operation with your Trustee; however, if you can pay a contribution from your income, this will be paid for a 4 year period.
Advantages of Sequestration
- It is possible to write off 100% of your debt
- Your Trustee will deal with your creditors – taking away the pressure of the constant phone calls and distressing mail
- Creditors cannot take legal action against you to recover their debt
- Interest, fees and charges are frozen – the creditors can only claim for the outstanding balance due as at the date of sequestration
- One, affordable monthly payment will be made, giving an allowance for all general living expenses and household bills
- You will normally be discharged from Sequestration after 1 year (assuming the Trustee does not have cause to delay the discharge)
- The application to the AiB does not involve court proceedings
- Sequestration stops or removes the effect of existing diligence e.g. an earnings arrestment or an Inhibition
Disadvantages of Sequestration
- Assets of a significant value are likely to be sold for the benefit of creditors
- You are unable to act as a director of a limited company or be involved in the formation, promotion or day-to-day financial management of a limited company.
- It may harm your employment prospects, both now and in the future
- Student Loans are not discharged by Sequestration
- Adverse impact on your credit rating
- £150 application fee* to be paid to the Accountant in Bankruptcy
- You cannot apply for credit of £2,000 or more, without telling the creditor that you have been made bankrupt and are under this restriction.
- You cannot apply for credit of any amount when you already have debts of £1,000 or more, without telling the creditor that you have been declared bankrupt and are under this restriction.
- Your bankruptcy will be registered on the Register of Insolvencies, a publicly available online register of all insolvencies in Scotland
- You are unable to act as a Member of Parliament or a Justice of the Peace.
- You may be in breach of certain contractual obligations by being made bankrupt e.g. tenancy/lease agreements, various licences, employment contracts, HP agreements, insurances etc.
- Bankruptcy has a 4-year acquirenda term i.e. the trustee has claim on assets acquired for a period of 4 years from the date of sequestration e.g. inheritance, lottery win, compensation claims etc
*If you are in receipt of certain prescribed social security benefits (e.g. Universal Credits, Child or Working Tax Credits) or you are assessed as having no surplus income then there is no application fee payable.
Find out more
Contact an experienced money adviser at Harper McDermott to find out more about Sequestration, Minimal Asset Process and any other insolvency solutions available to you.
We are here to help you decide the best course of action to suit your individual needs and support you every step of the way. If you would like a fresh start, get in touch today!
