DEBT SOLUTIONS
Sequestration Scotland – Scottish Bankruptcy

What is Sequestration in Scotland?,

Sequestration is a legal process that can help you write off the unsecured debts you can’t afford to pay, meaning you’re no longer required to pay them. It is designed to be used as a last resort when an individual has proven time and time again that they are unable to meet their financial obligations.

It can be used for most unsecured debts, such as personal loans, credit cards, child maintenance arrears, and overdrafts.

In most cases, an individual will voluntarily apply for sequestration when they decide they want to deal with their debt. However, creditors can also force individuals to apply for sequestration if they have been unsuccessful in recovering the money owed and the total debt is £5,000 or more.

Am I eligible for sequestration?,

There are certain eligibility criteria you must meet to qualify for sequestration. Generally, you should be able to apply for sequestration if you:

• Have lived in Scotland in the last 12 months or have a business in Scotland
• Have debts of more than £3,000
• Have not been made bankrupt in the last five years
• Can afford the £150 application fee
• Have received advice from an approved money adviser

How do I apply for sequestration in Scotland?,

The application process for sequestration typically follows a set number of steps. We’ve outlined them below:

Step 1: Getting debt advice

The first step to getting sequestrated is reaching out to an approved money advisor for debt advice tailored to your individual circumstances.

They will clearly explain the sequestration process and let you know if they think sequestration or another solution is the best option for you.

Step 2: Submitting your application

If the money advisor thinks you’re a suitable candidate for sequestration, your application will be submitted to the Accountant in Bankruptcy (AiB). They will award your sequestration, set the level of contribution (which is usually nil), and appoint a trustee to your case.

The money advisor who submits your application is typically appointed as your trustee. There is also a fee required to apply for sequestration (currently £150).

Step 3: Getting in touch with your creditors

Once your sequestration has been awarded, your trustee will contact you to discuss how your affairs will be dealt with. If your assets will be put towards your sequestration, you will be told how this will work at this stage.

This is also when your trustee will get in touch with your creditors to let them know that you have entered sequestration.

Step 4: Being discharged from your sequestration

If you cooperate fully with the terms and conditions of your sequestration, the AiB may grant your discharge at the end of one year.

However, although you may have been discharged, the sequestration process does not come to an end and you must continue to cooperate with your trustee whilst they are in office.

Furthermore, if you made payments throughout your sequestration, you will continue to do so for as long as it’s set out in your original terms and conditions.

How will sequestration affect my credit rating?,

Sequestration can have a significant impact on various aspects of your finances – especially your credit rating.

From the moment you’re sequestrated, it will stay on your credit file from the main three credit reference agencies and damage your credit score for six years. During this time, anyone performing a credit check on you will be able to see you’re sequestrated and this can make it difficult to get approved for credit.

This means that, even if your sequestration only lasts 12 months, your credit rating will remain damaged for several years and you’ll likely struggle to get a loan, mortgage, phone contract, or even a bank account for a number of years after you’re discharged.

Advantages & Disadvantages,

What happens when you are sequestrated?,

When you’re sequestrated, you are officially made bankrupt. There are several restrictions that come with being bankrupt, which we’ve outlined below:

You can’t be a company director

Firstly, bankruptcy means you will no longer be able to act as a company director or be involved in forming, managing, or promoting a limited company. It also means you can’t manage a business under a different name after you’ve gone bankrupt.

This means that, if you’re currently a director, you’ll have to notify the other directors of your organisation and resign from your role. If you’re the sole director, you’ll need to appoint a new director or dissolve the company before you resign.

There are no rules stating that you can’t continue in your current role but you must check the terms and conditions of your employment contract if you work in certain industries, such as financial services, the legal sector, or the armed forces.

Your assets will go towards your arrangement

When you enter sequestration, you must hand over control of your assets, including your home, to the trustee handling your case. They can then be sold at auction to repay your debt.

This may sound daunting and it’s normal to worry about which of your belongings you’ll have to give up, but this is to ensure as much money goes towards your debt as possible.

Remember, certain items are exempt from sequestration and won’t be seized. This includes any fixtures and fittings in your home and things you need for work or education purposes.

You must declare yourself bankrupt to lenders

Applying for more credit during an active bankruptcy is not recommended, but if you have no other option, there are some limitations you should know about.

For example, if you want to apply for credit of £2,000 or more, you must inform the lender that you’re bankrupt. They may then choose to reject your application on the basis of your unstable financial situation.

If your circumstances have worsened to the point where you need credit, you must inform your trustee as soon as possible. They will discuss your available options and work with you to find a suitable solution.

How long does the sequestration process last?,

The sequestration process usually takes 12 months from start to finish. When that time has passed, provided you have adhered to the rules of your sequestration and your financial situation hasn’t improved, you will be discharged from your arrangement.

However, if you made regular payments during your sequestration through a DCO, you may still have financial obligations to meet for another three years.

Furthermore, sequestration stays on your credit file for six years from the date it was approved, meaning it will continue to affect your credit score for up to five years after you’ve been discharged.

This is why sequestration is considered a last-resort option to deal with your unaffordable debt and it’s important to carefully consider the long-term financial impact of sequestration before agreeing to anything. The restrictions of sequestration may only last 12 months, but the effects can be much longer lasting.

Can I apply for sequestration if I'm a homeowner?,

If you’re a homeowner, you should think carefully before entering into a sequestration as the equity in your home could be classed as an asset and will need to be put towards your arrangement.

This can be a worrying prospect but you should be able to find out for sure by reading the terms and conditions of your original agreement. It’s not guaranteed that you will lose your home but it’s highly unlikely that you’ll be able to keep it if you have high equity in it as this could go towards paying your debt.

The only exception to this rule is if you have little to no equity in your home. In this case, you’ll more than likely be able to keep your home as any equity will be eaten up by legal fees before it can be used to repay your debt.

"There’s light at the end of the tunnel"

RAEMOND

Before receiving help from Carrington Dean Raemond was skipping meals so his family didn’t go without. Now he’s back in control and using his money to make memories that’ll last longer than his debt.

Read Raemond's Story

"There’s light at the end of the tunnel"

RAEMOND

I decided, about 10 years ago, to do something about my life. It got to the stage where it was becoming very depressing, soul destroying; I couldn’t get work back in the industry that I’d loved for over 25 years and there were spiraling debt just mounting up and mounting up.

Now, after having this in place, I’ve got some extra money every month, and I do treat my son to bits and pieces, days out, and he enjoys that.

Read Raemond's Story

Would I be better with a Debt Arrangement Scheme?,

A Debt Arrangement Scheme (DAS) is another formal debt solution available in Scotland, which is overseen by the Scottish Government and is designed for individuals struggling with multiple debts.

The scheme allows you to set up a Debt Payment Programme (DPP), enabling you to pay your debts at an affordable rate and over a reasonable period. However, unlike sequestration which is usually wrapped up after 12 months, there is no fixed term for a DAS.

The DAS requires you to pay into your DPP until you’ve paid your unsecured debt in full as there’s no opportunity for debt forgiveness.

If you are struggling to choose between a DAS and a sequestration, you should talk to a debt adviser. They will review your situation and discuss your available options to ensure you make the right option for your circumstances.

Where can I get debt advice and more information?,

Sequestration is a useful debt solution for people who have tried other debt relief options but have no realistic way of paying back what they owe. It allows you to take care of your debts in as little as 12 months, depending on your situation.

However, while sequestration can allow you to make a fresh start with your finances, it can have a long-lasting impact on your finances and should only be used as a last resort to pay creditors. There are other debt solutions available, including a DAS and a DRO.

If you are carrying debts you can’t afford or have questions about the sequestration or bankruptcy process, talk to Carrington Dean today. Our team of debt experts specialise in debt advice that will help you make the right decision for your circumstances.

What happens if I don't comply with my sequestration?,

If you don’t comply with the terms and conditions of your sequestration, a Bankruptcy Restriction Order (BRO) could be made against you which extends the restrictions already placed on you for another 15 years.

This can happen if you refuse to cooperate with your trustee, take out debts you know you can’t afford to pay back, or run a business while you’re in an active bankruptcy. These actions constitute a breach of the contractual obligations of your sequestration and can also result in legal action.