DebtOptions

Who can enter Sequestration?

If for some reason you cannot meet debt repayments and both of the following apply to you, you can enter sequestration:

• You have been resident in Scotland during the previous year but have not been made bankrupt within the previous five years
• The total amount of money you owe is £1,500 or more plus

Commonly, one of your creditors must agree to file to make you bankrupt, or you are in a position whereby it is ‘apparent’ that you cannot meet your repayments on time.

In this last scenario, there will commonly have been a successful application by a creditor to some form of legal redress in the Sherriff’s Court (such as a Charge for Payment Order, an Earnings Arrestment or a Statutory Demand).

Since it is not a suitable option in every case, this is the time to gain expert independent advice – you may in fact discover that there is a better alternative for your particular circumstances, for example, a Trust Deed or Individual Voluntary Agreements (IVA).

Why Might You Choose Sequestration?

• It will put a halt to the strain you may be under due to being unable to meet debt repayments.
• Creditors will not be able to start any fresh legal proceedings against you or contact you to continue to demand repayments.
• Instead, legally binding arrangements are made for the amounts you must repay and the repayment schedule.
• Your liability for many common debts end with discharge (the end of the process), although there are a few exceptions to this rule.

What Restrictions Apply?

The process is a legally binding agreement with rules. You are still liable for certain debts after discharge, such as:

• student loans

• any liability incurred due to acts of fraud

• liabilities to forfeiture of bail; obligations to pay aliment

• regular payments a sheriff has ordered you to pay to a spouse following divorce

Debts with joint liabilities can still incur legal action. This means if you have debts where there is a joint liability, for example, a joint credit card with a partner, creditors will still be able to take action against that partner.

If you have secured credit, you are still responsible for making payments (e.g. for your mortgage).

During the process, you must inform any new lenders offering £250 or more that you are an undischarged bankrupt. The process does not ‘cancel’ any debts you gain after you entered Sequestration.

What are the Disadvantages?

• Your finances are taken into account to determine how much creditors can be repaid and this can involve the loss of any property you own
• Your name will appear in local press and the Edinburgh Gazette
• Details will appear on your credit reference files for 6 years following discharge.
• Certain professional occupations have strict restrictions regarding sequestration.
• It is illegal to act as a Company Director until discharge and you must obtain permission from the court in order to undertake any activities related to the promotion, formation or management of a limited company
• It is not permitted to stand as an MP or carry out the duties of a Justice of the Peace, a School Governor or a local councillor.

Basics of Applying – Regulatory Bodies, Standard Timeline and Fees

Sequestration is regulated in Scotland by the Accountant in Bankruptcy (AiB). You must present a petition to the AiB in person. Should one of your creditors wish to request you enter sequestration, regardless of your wishes, they may present a petition to the AiB providing you owe them £1,500 or more in unsecured debt. The process will generally take eight to twelve weeks to become formally instigated.

You will need to pay an administration fee of perhaps around £100 to cover administration costs, and then the court fees. Check with the court on current fees as they vary year on year. You may be entitled to legal aid for the court fees but not the administration fee. The AiB or a private insolvency practitioner would then represent your case throughout the proceedings. It is common for the AIB to act as Trustees where there is no private insolvency practitioner hired.

Sequestration has advantages and disadvantages and is a highly formal, legal solution to unmanageable debt. If you are finding you are considering it for any reasons at all, it is absolutely essential to obtain expert professional advice before proceeding. With the support of good advisors acting in your best interests, debt problems need not cloud your outlook forever.