Sequestration is only available for people who are currently living in Scotland (or have lived in Scotland sometime during the last year).
If you are currently living in Scotland but when you originally borrowed the money that you owe you were living elsewhere, this does not matter. You now fall under the jurisdiction of Scottish law and you will be able to consider sequestration to resolve your debt problem.
The main Sequestration Acceptance Criteria
If you have decided to go into sequestration you must meet the following conditions:
- You must have debts of £1500 or more
- You must not have been made bankrupt in the last five years
Before 2010 you would have also needed to have meet one of the following conditions:
- One of your creditors would have to have been willing to agree to your bankruptcy (creditor concurrence) and completed the required form confirming this.
- A Charge for Payment had been issued against you by one of your creditors and fourteen days notice elapsed.
- A Statutory Demand had been issued by one of your creditors and 21 days elapsed.
- You had received an Earnings Arrestment as a result of a Charge for Payment
However you can now go into sequestration without meeting any of these conditions using the Certificate for Sequestration.
Which debts can be included in Sequestration?
You can only include unsecured debts in Sequestration. These include debts like credit cards, personal loans, catalogues, pay day loans and bank overdrafts. Note: You can not include a student loans company debt or certain court fines.
You can not include secured debts such as a mortgage or secured loan in Sequestration. As such if the only debt you have is secured, then Sequestration may not be for you.
What happens to your home in Sequestration?
If you are a homeowner, the decision whether or not go into sequestration will be less clear. The issue is that in Sequestration, the title to any equity owned by you in your property will be transferred to the Official Receiver. It is then the Receiver’s duty to realise this equity for the benefit of your creditors.
If you have little or no equity , you may be able to declare sequestration and keep your house. However, if there is significant equity in the property, it is likely that you will have to move out of the house and it will be sold. Under these circumstances it may be more sensible to consider an alternative solution such as a Trust Deed or Debt Arrangement Scheme.
What happens to your car in Sequestration?
Generally speaking you are not allowed to keep a car worth more than £3000 if you are sequestrated. If your car is worth more than £3000 you have some options:
1 – Sell your car and buy something cheaper. The difference will normally have to be given to your Trustee in Bankruptcy
2 – Keep it if a friend or family member can raise a sum similar to the difference between the value of the car and £3000 which is then paid to your Trustee.
What happens to other valuable assets you own?
With the exception of reasonable household items, any expensive assets you may have, including your home (if owner-occupied), will have to be handed to your trustee. They then have a duty to sell these assets to realise value for your creditors.
You will be allowed to keep any reasonable household items such as clothes, furniture, household linens, floor coverings, anything used for cooking or cleaning, educational items and children’s toys. You can also keep any tools needed for a trade, up to a value of £1,000.
You cannot sell or give away any assets for less than their full value up to five years before going bankrupt. If you do this, your trustee may ask the sheriff to recover those assets or their equivalent value so that they can be given to the trustee and sold for the benefit of your creditors.
Will you have to make payments towards your debts in Sequestration?
When a sequestration order is granted and you are made bankrupt, a trustee will be appointed. In addition to considering any of your valuable assets, your trustee will also consider whether you should make a contribution from your income or pension to help towards paying for the cost of your bankruptcy and your debts.
Your trustee will look at your income and how much you and your family need to live on. They will then assess whether or not you have any surplus income and, if you do, they will expect you to make a contribution from that.
If you receive social security benefits or tax credits no contribution will be taken from them.
If you agree with the trustee’s expectation and to making a voluntary contribution, an Income Payment Agreement (IPA) will be made. You can pay this from your bank account or agree to have deductions taken directly from your wages.
If you cannot reach an agreement or if you stop paying an IPA, your trustee can ask a sheriff to decide the amount you should pay. The sheriff will take into account any information you provide before making a decision.
The sheriff will make an Income Payment Order (IPO) stating the amount you must pay. Your trustee can ask the sheriff to order payments directly from your wages.
It is a criminal offence to fail to comply with the terms of an IPO. If you stop making your contribution under your IPO, your trustee may report you to the sheriff. It is therefore important to contact your trustee as soon as possible if you are unable to continue paying your contribution.
An IPA and an IPO last for three years from the date they are set up.
Every six months you will be required to complete a questionnaire to review your financial position even if your circumstances have not changed. Your trustee will then reassess the situation and may vary your contribution. If you have an IPO, you or your trustee will have to go back to court to let the sheriff decide whether your contribution should be varied.
Will your sequestration be made public?
In the past, your sequestration would have been advertised in the local newspaper. However, this normally no longer happens.
Your will trustee will advertise your bankruptcy in a publication called the Edinburgh Gazette. This is an official publication that is used to inform creditors and credit agencies that you have been made bankrupt. However, as this is normally not read by members of the general public, it would be unusual for your friends, family or employer to find out about your sequestration unless you decide to tell them yourself.
Your employer will not be automatically told of your sequestration.
However, the fact that you are bankrupt will remain on the Register of Insolvencies until one year after your trustee has completed their duties. This register is also available to the general public via the internet.
Is sequestration suitable for Company Directors and sole traders?
If you are in sequestration, you cannot act as a director of a limited company, or as a governor or a member of a school board or as a Member of Parliament.
However, you are allowed to carry on business as a sole trader if you wish and you will be able to keep the tools necessary to allow you to continue with your trade.
However, during your sequestration, you must remember that your credit rating will be affected and you are unable to take credit over £250 without declaring that you are an undischarged bankrupt. This might make the possibility of continuing to trade as a sole trader more difficult.
Other Debt Solutions might be suitable for you
Sequestration is not the only debt solution which might be suitable to resolve your debt problem. Before making your final decision to apply for sequestration you should also consider the other available debt solution options.
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