Sequestrations and Trust Deeds are two of the most popular debt solutions available to people struggling with unaffordable debt in Scotland. But while both can help you become debt-free and start afresh with your finances, knowing which is better suited to your financial situation can be tricky.
There are various advantages and risks associated with both debt solutions, and it’s important to research both the short-term and long-term implications of each to determine which is the best option for your current circumstances.
In this article, we’ll compare Sequestrations Vs Trust Deeds in greater detail, highlighting the various similarities and differences between them so you can make an informed decision to help you deal with your debts.
What is sequestration?
Sequestration is the name given to the bankruptcy process in Scotland and is a way of being able to clear your unsecured debts in as little as a year.
Most sequestrations last 12 months, after which time you’ll be discharged and your remaining debt will be written off – even if you didn’t make a single payment during this time.
When you enter into a sequestration, all interest and charges on the debt will be frozen and you’ll only be asked to make regular payments if your financial situation allows it. If this is the case, you may also be asked to make payments for another three years after your arrangement ends (four years in total).
However, because of its long-term implications on your credit rating, sequestration should only ever be considered as a last resort and if it’s been proven that you are insolvent and have no other way of paying your debts. Sequestration can also affect your job if you work in financial services or a public office.
Furthermore, you’ll be required to turn your assets, including your home and car, over to your arrangement, which can then be sold to raise money for your creditors (the people you owe money to). These assets will be held by a licensed Insolvency Practitioner (IP), who will go on to become your ‘Trustee’ to liaise with your creditors and manage any surplus income throughout your arrangement.
Are you considering a Trust Deed?
What is the sequestration application process?
The sequestration application process is fairly straightforward and is not dissimilar to the bankruptcy application process.
Here is a brief guide to what you can expect when you apply for sequestration:
Get debt advice
Before you apply for sequestration, it’s important to talk to a financial professional, such as an IP, about your debts.
They will clearly explain the sequestration process and talk you through alternative options so you can be confident you’re making the right decision for your finances.
They will also compare you against the eligibility criteria for sequestration by checking you have lived in Scotland for at least six months, have unsecured debts of more than £3,000, and have not undergone sequestration (or bankruptcy) in the last five years.
Submit your application
Once you’ve discussed your situation with a financial professional and decided sequestration is the best option for you, an IP or money advisor will submit your application to the Accountant in Bankruptcy (AiB).
There is a fee of £150 to submit an application, which can be waived if you receive certain benefits but otherwise must be paid before your application can be made.
Wait for a decision
The AiB will usually get back to you within eight days if they have all the information they need to make a decision.
However, if the AiB requires additional information to process your application, they will write to you and give you 21 days to provide this. Failure to provide this information can result in the AiB refusing your application for sequestration.
The AiB will then award your sequestration and determine your contribution level, which is based on your financial situation and can be nil if you can’t afford to pay anything towards the debt.
Receive your bankruptcy award letter
Once AiB has written to you with their decision, you’ll receive an award letter confirming your sequestration, your start date, your Trustee details, your monthly contributions, and your length of payment schedule (if applicable).
Your sequestration will also be added to your credit file and a public register called the Register of Insolvencies (ROI). This will affect your credit rating and make it difficult to get approved for further credit.
Debt Solution Finder
What is a Trust Deed?
In Scotland, a Trust Deed is a formal debt solution that allows you to consolidate your unaffordable debt into a series of monthly payments over a set period (typically four or five years).
When you enter into a Trust Deed, your Trustee will conduct a thorough review of your financial affairs to determine how much you can realistically afford to pay towards your arrangement each month. They will also take your assets into account, which may be sold to raise more money for your creditors.
Once you’ve made your final monthly payment, any remaining debt will be written off and you’ll be free to move on with your life.
Trust Deeds can be protected or unprotected depending on whether your creditors agree to your arrangement. If the majority of your creditors have no objections, you’ll be protected from legal action, charges, and interest being added to the debt.
What is the Trust Deed application process?
The Trust Deed application process is also straightforward and includes just a few simple steps.
Here is a brief guide to how the Trust Deed application process works:
Meet with an IP
The first thing you must do is reach out to an IP who will sit down with you to discuss your financial situation and decide if a Trust Deed is the best option for your circumstances at this time.
They will then calculate how much you can reasonably afford to pay towards your debts each month and create a realistic budget that you should be able to stick to.
Sign your proposal
Once your IP has drafted a proposal, you must review it and sign it. This indicates that you’re happy with the proposed terms and are ready for it to be sent to your creditors for approval.
The proposal will outline how much you can afford to pay, how payment will be made, and how your assets will be dealt with.
After you’ve agreed to the terms of your arrangement, the proposal will be sent to your creditors for review.
Get your creditors’ approval
Your creditors will be given five weeks to accept or object to your Trust Deed. If no objections are made or no responses are recorded, your Trust Deed will become a Protected Trust Deed, which means your creditors are locked into the arrangement and can no longer take legal action or add interest or charges to the debt.
However, if sufficient objections are received, your Trust Deed will fail. When this happens, your Trustee will resign from their duties and you will be given further advice and support on how best to deal with your debts.
Receive protection status
As long as no objections are made to the terms of your arrangement, you will enter your Trust Deed and be protected from further legal action, interest, and charges until it comes to an end (typically after four years).
This will give you the time and peace of mind you need to gradually repay your debts without the added pressure of being taken to court or watching your debt level increase.
Here’s an example of how we can help.
Let's say you owe...
Credit Card
Bank Loan
£13,420.00
Collection Agency
£4,715.00
Payday Loan
£1,152.67
Rent Arrears
£477.00
Council Tax
£279.04
Total amount owed:
£22,707.91
After a Trust Deed
Example case completed in 2023. Repayment calculated using income and expenditure data. Monthly payments and write off percentages are based on individual circumstances.
How do sequestrations and Trust Deeds compare?
Sequestrations and Trust Deeds are both effective solutions to help you deal with your debts, but there are several differences you should be aware of.
The below table compares both debt solutions in greater detail, focusing on a variety of factors, such as duration, cost, publicity, and pre-requirements.
By comparing sequestration and Trust Deeds, you can make an informed decision to help you deal with your debt problems and improve your financial situation for good.
We hope this table has highlighted the similarities and differences between a Sequestration and a Trust Deed. If you are still struggling to decide which personal insolvency solution is right for you, please do not hesitate to contact one of our advisers to discuss the debt solutions available to you on 0800 043 1320.
