Before you make a decision about whether or not to go Bankrupt you may want to consider some of the advantages and disadvantages of the solution. Some of these are highlighted below.
As you go through these you should remember to consider them in the context of your own situation as they may not all be relevant to you.
More often than not an advantage or disadvantage which is important to one person may actually be unimportant or irrelevant for another. As such this type of debt solution will be simply more or less suitable for you given the context of your personal financial situation.
The main Advantages of Sequestration / Bankruptcy
1. Debt Written Off
Once your sequestration has been awarded, the responsibility for paying your unsecured debts will be taken away from you. After you are discharged which will normally be after 12 months, any outstanding unsecured is written off and you can resume you life debt free.
2. No further creditor action
When your Sequestration is awarded, pressure from your creditors goes away. Your creditors cannot take further action against you to recover their debt, or add further interest or charges to your accounts. This gives you peace of mind that once the Sequestration is completed you will be left debt free.
3. Lasts just 12 months
You will normally be in sequestration for just 12 months. After that period you will be discharged and free from the restrictions of sequestration.
However, if you are subject to an income payment agreement or order, you may have to continue making payments from your income for up to three years from the date for your sequestration.
4. Pay nothing unless you can afford to do so
If you have no or very little disposable income r your income is derived from benefits, you will not be expected to pay anything from your monthly income towards your debt.
If you can afford to do so, you will have to make monthly payments towards your debt for 3 years. However, after these payments are completed, any outstanding debt will be written off by law.
5. Keep reasonable assets
If you declare bankruptcy, you will be allowed to keep reasonable household items. These include 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.
6. Relatively cheep to implement
If you wish to apply for Sequestration either through LILA or the Certificate for Sequestration you will need to pay an up front fee to the Accountant in Bankruptcy of £200.
The main Disadvantages of Sequestration / Bankruptcy
Although the advantages of sequestration are significant, undertaking this solution is a serious matter. As such, there are some things that you must bear in mind when considering if it is the right option for you:
The rules regarding the publicising of sequestration were changed in 2009. Now, unless you are self employed it is unlikely that your name and address will be published in the local newspaper. As such locally based friends, colleagues and business are unlikely to find out about your bankruptcy unless they do a search of your name on the insolvency register.
If you are declared bankrupt, your name will be entered onto the insolvency register. This is a list of everyone who is declared bankrupt or enters into a Trust Deed in Scotland. This register is publicly accessible via the internet (see ‘Related Links’ above). As such, anyone searching for you on this register will become aware that you are bankrupt
2. Credit Rating Effected
The record of your bankruptcy remains on your credit file for 6 years meaning it will be difficult to obtain further credit during this time.
3. Property May be Sold
If you have equity in your property, you will have to give this to your Trustee. This may result in the sale of your house unless a friend or family member can raise a similar sum on your behalf which can be given to the Trustee in lieu of your equity .
4. An Expensive car may have to be sold
You may have to trade in a car worth more than £3000. If your car is worth more than £3000, you may be able to keep it if a friend or family member can raise a sum similar to the difference between the value of the car and £3000. This can then be given to the court in lieu of the equity within the car.
5. Unable to work as a company director
You will be unable to act as a company director or be involved with the management of a limited company while you are in sequestration.
6. Make Income payments for three years
If you are in paid employment you may have to make payments towards your debts for 3 years. These payments will increase if your income improves during this time.
7. Hand over Inheritance and windfalls
If you inherit any money or property after the date of your Sequestration and before the date of your discharge you will have to surrender it to your Trustee.
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