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Can I keep my house on sequestration?

Posted 17 June 2016

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When you enter the Scottish form of bankruptcy, will you always be required to give up your home?

The Scottish form of bankruptcy is a way to deal with insolvency and it might be suitable for you if your unsecured debts have become unmanageable and you can’t afford to pay them back. Under the debt solution, you only pay what you can afford towards your debts and if your situation hasn’t improved after a year, the rest of your debts included on the solution will be written off. You’ll also have to make payments for up to four years, unless all of your income is from benefits.

But will you lose your home if you enter sequestration? Let’s take a look at what could happen with this debt solution.

Selling your home

When you’re going through sequestration, the Accountant in Bankruptcy (AIB) will appoint an Insolvency Practitioner (IP) as your trustee to manage your estate. This means the control of all of your assets will transfer to this trustee and they will then look at your situation to see if you can afford any repayments towards your unsecured debts.

If you’re a homeowner, your trustee will look to either sell your home or release some equity to pay off some or all of your debts. This is called ‘realising’ your assets.

You might own a property with your partner – this means you own a portion of it. In this situation, your partner might agree to the sale of the property, and they would get their share of the equity from this – so if you own it 50/50, they’ll get half of the equity. They might also decide to buy out your share of the equity, which might mean you would get to stay in your home but your partner would own it. The money they paid to buy you out would go into the sequestration.

If neither of these things can happen, your trustee might look to sell the property. They have the power to do this unless another person has an interest in the property or it would mean evicting children. In these circumstances, your trustee would apply to the court to sell your home. But if this was to happen, the court would generally delay the application until your family found somewhere else to live.

But if your mortgage lender has already started the process of repossessing your home, your trustee can’t stop them from doing this. When they’ve sold your property, if there’s any money left over from what you owed to your mortgage lender, your trustee could put this towards your unsecured debts. And if there’s still money left after your debts have been cleared, you’d get this back. However, if this was going to happen, your IP may not recommend sequestration.

When you could keep your home

Your trustee will look at your individual situation when they’re deciding whether or not you need to sell your home. For example, if you’re or another person you live with is disabled and your property has some modifications to help you with this, your trustee might not sell your home or they could delay the sale until you could find somewhere suitable to live.

Another reason the sale of your home could be delayed is if your children are at an important stage in their education and moving away from a specific school will disrupt their learning. This could mean you’ll get longer to find alternative accommodation.

If you’re in the process of entering sequestration and you’re worried about losing your home, you should contact your trustee as soon as possible. They’ll be able to let you if they intend to sell your home or not based on your situation. But if losing your home was your main concern, another solution might be more suitable.

If your house is in negative equity, you will be able to remain living there. The decision whether to sell or not is based on how much money would be left over from the sale. However, your trustee could still sell it for up to three years after your sequestration in case it has increased in value.

What else to consider

As sequestration offers you the chance to have the remainder of your debt written off at the end, it’s really important that you put everything you can towards your debts while it’s ongoing. Because of this your trustee may sell some of your other assets to pay your lenders. They won’t take anything you need for your day-to-day life like your bed or tools if you need them for your job.

If you have a car, your trustee might let you keep it if you need it for work. But if it’s an expensive vehicle, the trustee may decide to sell it. You also can’t take certain jobs if you’re sequestrated – you can’t be a director of a company or have a job in a public office, like an MP. If you speak to us about your debt problems and it turns out sequestration is incompatible with your job or a job you wanted to go into in the future, we will look at the other options and see which is most suitable for you.

And, like other debt solutions, your sequestration will have a negative effect on your credit history for six years. Lenders can see this if they credit check you and they’ll know that you haven’t kept to some of your original credit agreements.

As lenders use your credit history as well as their own criteria to decide whether or not to lend to someone, sequestration can mean that you’re less likely to be approved for credit or that you have to pay a higher rate of interest.

Advantages of sequestration

Of course, all this doesn’t mean sequestration doesn’t have any benefits. When you’re accepted for sequestration, your lenders can’t take any further action against you. You’ll only make payments at level you can afford – this means if you can’t afford to pay anything, you won’t have to.

And when your sequestration finishes, any debts you can’t afford to pay off are written off. This usually happens after a year, and you could then start to get back in control of your finances. Depending on your situation, you might have to continue to make payments for a total of four years since you started your sequestration.

Other suitable solutions

If you’re a homeowner and you’ve got some equity in your home, it’s possible another debt solution might be more suitable for your situation.

A Trust Deed is one alternative solution to consider. It’s legally binding and it’s suitable for people with unmanageable levels of unsecured debts in Scotland. Under a Trust Deed, you’ll make reduced payments for four years, based on what you can afford and your interest and charges will be frozen. At the end of the four year period as long as you have kept to the rules of your Trust Deed, the rest of your debts included in it will be written off. You won’t lose your home with a Trust Deed but you will have to try to release some equity from it. If you can’t release equity from your home, your Trust Deed may be extended for up to another 12 months.

Taking out any debt solution is a serious decision and it requires a lot of careful thought and expert advice to make sure you choose the one that’s right for your situation. You can get free and impartial advice about any debt problems from the Money Advice Service or contact our trained advisors using one of the options on the left. Don’t worry – no matter how much you’re struggling, there’s always a way out of your problem debt and speaking to a financial expert is the first step towards this.

by Emily Bancroft

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