Sequestration is the Scottish equivalent to bankruptcy. If you can't afford to pay your debts when they become due, you may be able to apply for sequestration. Your creditors may also apply to the Sheriffs Court to declare you bankrupt.
In sequestration, control of all your assets (including your home, car and investments) is passed to the Trustee (who administers your sequestration) and the Trustee may sell them to pay your creditors.
The Trustee also has the option to request a regular contribution from your income during the sequestration period.
Advantages of sequestration
- Once the sequestration has been administered, your creditors will not be able to take further action against you to recover monies outstanding
- Once you are in sequestration, you don't need to make any more payments directly to the creditors included in your sequestration. If you can afford to do so, you will have to make a payment directly to the Trustee for 3 years
- It is likely that you will be discharged from the sequestration after 1 year, and all debts included in the sequestration will be written-off after this time
Disadvantages of sequestration
- If you own valuable items such as property, vehicles, savings or investments, the Trustee will sell them to repay your creditors. You will normally be allowed to keep items you need for day-to-day living such as clothes and furniture. You may also be able to keep a vehicle up to a value of £3,000 that is reasonably required by you.
- Your employment may be at risk. Before entering sequestration, you should check the terms of your contract, or speak to your employer
- Your credit rating will be affected for a minimum of six years. Even after this period, it may still be difficult to obtain credit
- Those with a regular income may have to make a regular contribution into the sequestration
- If you receive any windfalls, inheritance, bonuses or similar, you'll be required to pay these to the Trustee
- Before you're discharged from sequestration, it'll be unlawful for you to borrow more than £500 unless you inform the lender that you're an undischarged bankrupt
- Sequestration often rules out the option to continue trading if you're self-employed
- You won't be able to act as a director of a limited company, a member of any local council, a member of a school board or a Member of Parliament
- If you don't co-operate fully with the Trustee during the Sequestration, your Bankruptcy may be extended for an extra two years at a time
How do I apply for my own sequestration?
As long as you owe a total debt of at least £1,500, and haven’t been made bankrupt in the last five years, you need to submit an application form along with a cheque for £200 to the Accountant in Bankruptcy. You must also provide evidence of one of the following to prove that you're eligible to petition for your own bankruptcy:
- Proof that you signed a Trust Deed which failed to become protected
- A Certificate of Sequestration. This is granted by an authorised person and certifies that you are unable to pay your debts as they fall due. Insolvency Practitioners employed by Payplan are authorised to grant a Certificate of Sequestration
- You must be apparently insolvent. This usually takes the form of an expired Charge for Payment or expired Statutory Demand, which are legal documents normally served on you by a Messenger-at-Arms or Sheriff Officer
- You must meet the conditions for the Low Income, Low Assets (LILA) route
- The conditions for the LILA route are that:
- Your income from any source is no more than the National Minimum Wage or you are in receipt of Income Support or other income related benefits
- You don't have any single assets worth more than £1,000, excluding a vehicle worth up to £3,000, and your total assets aren’t worth more than £10,000
- You must not own, or jointly own, a house or any other property or land
Sequestration is an extreme solution, and in most situations there are less severe options such as:
Call Payplan free on 0800 280 2816 or use our Debt Help Form to submit your debt problem online for free sequestration advice.