The truth about bankruptcy
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Sequestration is one way to solve your debt problems, if you live in Scotland. But you need to make sure it’s the right solution for you first and that you’ve considered the alternatives.
Bankruptcy in Scotland, known as sequestration, is one way for people who are struggling with their unsecured repayments to get back in control of their debts. It lasts for a year and after that time, as long as you have stuck to the rules, any remaining unsecured debts are written off.
Let’s have a look at how it works in a bit more detail.
How it works
As we said, if all goes to plan, sequestration will only last for a year and after that time any remaining debts, including interest and charges, are written off altogether.
Sequestration is a formal solution to deal with insolvency - when you either can’t afford to pay your debts when they are due, or your debts are worth more than your assets. It’s legally binding for you and your creditors and provides protection against any further legal action. So your creditors can’t chase you for the money, or apply for a decree against you, once your sequestration is awarded.
When you go into sequestration, a Trustee is appointed to manage the process. They will assess what assets you’ve got. If you have savings you’ll be expected to put them towards your debts, and if you have other assets, you may have to sell them and put the money towards what you owe. Assets only refer to things like property, shares, jewellery, and vehicles. You get to keep any household items or tools for work (under £1,000), if they’re essential.
If you own a home and have equity in it, you may have to sell it, unless there are exceptional circumstances which mean that you need to live in a certain house or area.
While you’re going through sequestration, you may also have to pay something towards your debts each month, but only if you can afford to do so once you’ve paid your essential living costs. Your Trustee will send over a proposal for your payments and the Accountant in Bankruptcy will decide on the level of your contribution. If you do have to make contributions, they will last for four years altogether.
Other things to consider
Whilst sequestration can help you “reboot” your finances, there are drawbacks, including damage to your credit history for six years from the date that you start the solution.
This can affect whether or not you’re accepted for credit in the future, the interest rates you qualify for and whether you’re accepted for certain services, like mobile phone contracts and tenancy agreements. If you have missed payments and defaulted on any of your debts, then it’s possible that your credit history has already been damaged.
Sequestration isn’t compatible with all job roles. If you have a job which involves handling money, giving advice about money or which carries a high level of authority, such as being a police officer or prison guard, then sequestration may not be the right option for you. If you’re unsure whether or not your employer will have a problem with you going through sequestration, make sure to check your employment contract carefully. If there is a problem, a debt advisor will be able to tell you whether you can start another, more suitable solution.
When you go into sequestration your details are added to the Scottish Insolvency Register. This is an online list of people who have started solutions to deal with insolvency and it records information such as your name, date of birth and address. It’s mainly used by credit reference agencies and the people involved in the running of your sequestration, although it is publicly available and can be searched by anyone.
How do I apply?
If you want to apply for sequestration you need to have received advice from a qualified Money Advisor first, to make sure that an expert has agreed it’s the best way for you to deal with your debts. You also have to owe more than £3,000 in unsecured debt and be able to show that you live in Scotland.
You can apply for sequestration through the Accountant in Bankruptcy (AiB) by filling out the relevant forms. There’s a £200 fee for applying. There are no exceptions to the fee, however you can pay it in instalments. Just bear in mind that if you do, your application won’t be considered until the fee has been paid in full.
If you want to find out whether sequestration is right for you, our expert Money Advisors are available to talk to at a convenient time for you, using the options at the top of the page.
by Christine WalshBack to blog home