Debt problems can be overwhelming, and when unsecured debts become unaffordable, it can feel like there’s no way out.
However, in Scotland, sequestration can offer a last resort for those struggling to repay their debts.
Sequestration is a legal process that can help individuals deal with unaffordable debts by writing them off. In this article, we will provide everything you need to know about sequestration in Scotland, including how it works, who is eligible, and its potential advantages and disadvantages.
What is Sequestration (Scottish bankruptcy)?
Sequestration is the Scottish version of bankruptcy, a debt solution that sees ownership of your assets (anything you own of significant value) transferred to a selected Trustee.
It is your Trustee’s job to be in control of these items and make sure as much of your debts are paid as possible.
Your belongings are then sold at auction and the money made is paid to your lenders.
You can apply for sequestration yourself, but it’s also possible for a lender to apply to have you sequestrated, whether you want them to or not.
However, the only way they can do this is if you owe them £3,000 or more.
Generally, this type of solution is designed to only be used when you feel you have no other option. As such, it’s always best to do your research and consider contacting a money advisor to make sure it’s the best solution for you.
What kinds of debts can be included in sequestration in Scotland?
In Scotland, sequestration can include most unsecured debts, such as personal loans, payday loans, credit card debt, store cards, and overdrafts.
However, secured loans that are secured against an asset, such as a mortgage or car loan, cannot be included in sequestration.
It’s also worth noting that certain debts, such as court fines, student loans, and child support payments, are generally not eligible for inclusion in sequestration.
How long does sequestration last?
Your sequestration will usually last a year, and as long as you have worked with the Trustee and have stuck to all the terms and conditions, you will then be discharged.
However, this doesn’t always mean it’s over.
In some cases, it is agreed that you will make payments into your agreement if you get a regular income, known as a debt contribution order (DCO), which lasts for four years.
It’s also possible for the Trustee to extend your sequestration if it is found that you haven’t stuck to the terms and conditions.
How much does sequestration cost?
As well as the possibility of a DCO, there is also a fee of £200 to apply for sequestration, which must be paid to the Accountant in Bankruptcy (AiB).
There are also fees that are payable to your Trustee, but these will be claimed from the money that is brought into the sequestration through the sale of your goods and your payments.
It’s important to note here that you will only have to make the payments agreed and will not be expected to make any additional payments.
Sequestration advantages and disadvantages
Deciding how to deal with your debts isn’t an easy decision, and it’s very important to make sure you know all the good and the bad points about any solution before you make your decision. As such, we’ve laid these out below for you:
Advantages of a Sequestration Scotland
- Sequestration halts creditor actions and provides relief from debt-related stress.
- It can be a relatively quick way to deal with overwhelming debts.
- There is no need for direct contact with lenders during the process.
- All debt repayments will be stopped, except for possible Debt Contribution Orders.
- After discharge from Sequestration, you can start anew with most debts written off.
Disadvantages of a Sequestration Scotland
- Sequestration may include the loss of valuable assets, including your home and car.
- It will potentially impact your employment, depending on your occupation.
- Extra income may be used to repay remaining debts.
- Sequestration has a severe impact on credit rating and future borrowing opportunities.
- Some debts, like court fines and student loans, will still need to be repaid in full.
The Sequestration process
To help explain how this debt solution works, we’ve laid out the sequestration (bankruptcy) process below for you:
Seek debt advice
The first step to take if you’re considering sequestration is to seek advice from an approved money adviser or an insolvency practitioner (IP).
They can give you all the information about how the process works and talk through your situation with you.
This will allow them to then offer advice on whether this is the right solution for you as there may be others better suited to your circumstances.
Apply through the Accountant in Bankruptcy
If you then decide that this is the route you want to go down, then your approved money advisor/practitioner will be responsible for arranging and submitting your application to the AiB.
Once this has been done, it will then be down to them to grant you the sequestration and choose a Trustee to allocate to your arrangement.
In most cases, this is the IP you apply through but can sometimes differ.
The £200 application fee must be paid at this point and must be sent alongside your application papers as well a certificate of sequestration (which is usually provided by whoever is submitting your application).
Work out your monthly payments
After your application for sequestration is approved by the Accountant in Bankruptcy (AiB), you will need to work out your monthly payments based on your income and expenses.
The trustee appointed to your case will help you with this process.
To determine your income, the trustee will consider your employment income, benefits, and any other income sources you may have.
They will also review your expenses, including your rent or mortgage payments, utilities, food, and other necessary expenses.
Based on this information, the trustee will determine how much you can afford to pay towards your debts each month.
Once your sequestration has been granted, it’s time to surrender your assets (things you own that are of high value).
Your Trustee will contact you to arrange how and when this will be done.
They will also contact your lenders at this point to make them aware that you are now sequestrated, and it will be their responsibility to deal with them on your behalf from then on
Discharge from bankruptcy petition
As long as you work with your Trustee and stick to the T&Cs of your sequestration, you will be discharged after a year.
If a DCO has been agreed, then you will still need to continue to make payments.
If necessary, your Trustee may remain ‘in office’ for a further three years after your discharge, meaning you will still need to work with them for this time.
You will also have to declare any new assets or extra income as they may still be taken to help pay your debts.
What happens once you’re discharged from sequestration (Scotland)?
Once you have been discharged from sequestration in Scotland, the majority of your debts will be written off, and you will be free from any legal obligation to repay them.
However, there are a couple of important things to note about the process of being discharged from sequestration.
Firstly, while most of your debts will be written off as part of the sequestration process, there may be some exceptions.
For example, certain debts, such as court fines or student loans, are not typically included in sequestration and may still need to be repaid.
In addition, if your trustee determines that you have the ability to make additional payments towards your debts, you may be required to make a debtor contribution order.
This means that you’ll need to make regular payments towards your debts for a period of time, even after you’ve been discharged from sequestration.
Sequestration vs Debt Arrangement Scheme (DAS)
Deciding between sequestration and Debt Arrangement Scheme (DAS) depends on your individual circumstances.
Here’s an overview of both options to help you make an informed decision:
- A formal insolvency process that can help you deal with unaffordable debts by writing them off.
- It’s typically best suited for those with a high level of unsecured debt and no realistic prospect of repaying it in a reasonable timeframe.
- Sequestration is a serious step and can have long-term consequences on your credit rating and ability to obtain credit in the future.
Debt Arrangement Scheme (DAS)
- A government-backed debt management scheme that allows you to repay your debts in full over an extended period of time using a Debt Payment Programme (DPP), which can take up to ten years.
- Typically best suited for those who can afford to repay their debts but need more time to do so.
- With DAS, interest and charges on your debts are frozen, and you make one affordable monthly payment to a payment distributor who distributes the funds to your creditors.
- Unlike sequestration, DAS does not involve writing off your debts entirely.
Will my credit rating be affected if I’m declared bankrupt?
Yes, your credit rating will be affected if you’re declared bankrupt in Scotland. Bankruptcy is a formal debt solution and is viewed as a serious form of insolvency.
As a result, it can have a significant impact on your credit rating and ability to obtain credit in the future.
After you’re discharged from bankruptcy, it can be difficult to obtain credit, and you may be limited to certain types of credit, such as secured credit cards or loans for a period of six years.
Even if you are able to obtain credit, it may come with higher interest rates or more stringent terms and conditions.
If you’re a company director, it’s also important to note that being declared bankrupt can have implications for your ability to act as a director in the future. You may be disqualified from acting as a director for a period of time, and your bankruptcy will be recorded on the Companies House register.
Where can I get help choosing the right debt solution?
If you owe money to creditors, it can be an incredibly stressful and overwhelming experience, especially if you’re not sure what will work best for you: A Trust Deed, A DAS, or another debt solution.
Our dedicated team of advisors can help you find the answers. Talk About Debt has helped thousands of people just like you to navigate through their financial difficulties and find a solution that works for them.
We believe that everyone deserves a fresh start and a chance to move forward from unmanageable debt. If you’re ready to take control of your financial situation, contact one of our advisors today.