Find Out If You Qualify For An Sequestration

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If you live in Scotland and you are unable to repay your unsecured debts and you debt amount comes to more than £3,000, then you might be able to enter sequestration. Sequestration is not an ideal debt solution for all. Although it has helped a lot of people in Scotland get back on their feet, it is imperative that you weigh its pros and cons before entering it. In this article, we will discuss all that you need to know about sequestration.

What is sequestration?

Sequestration is a formal debt solution that helps you clear your unsecured personal debts in just 12 months. The term “Sequestration” means the same as “Bankruptcy in England, Wales and Northern Ireland.   It is a form of insolvency meant to be used only as a last option when you cannot genuinely be able to pay back your debts in any other way.

Sequestration has severe effects on your life and thus, it is necessary that you take into account everything before applying for it. However, it can help you get rid of debts that would otherwise take a long time to pay back. Therefore, if you owe more than you are making, and you do not have many assets to sell to clear your debts, you should consider sequestration.

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How does sequestration work?

Starting a sequestration is one of the major steps you can take to getting rid of all your unsecured debts. However, it is not always a decision you make on your own. It is recommendable you consult an experienced debt expert before entering into sequestration so that you can determine if it’s the best debt solution for you. 

There are three main ways you can enter into sequestration:

  1. Making an application for sequestration yourself
  2. If a creditor declares you bankrupt through a Sheriff Court
  3. If you break the terms of your Protected Trust Deed (PTD) and your Insolvency Practitioner (the person administering your trust deed) applies for your sequestration

Applying for Your Own Sequestration

To apply for your own sequestration you must:

  1. Be living in Scotland or have lived in Scotland at some point in the previous year.
  2. Not have been declared bankrupt in Scotland for the last five years.
  3. Owe more than £3,000 in unsecured debts.
  4. Prove you are in apparent insolvency (You can do this via a certificate for sequestration or via creditor concurrence.)
  5. Pay an application fee of £200 to the Accountant in Bankruptcy (AiB).
  6. Have a qualified trustee or insolvency practitioner to oversee your sequestration.

Apparent insolvency means that you cannot afford to repay your debts when they are due. You need to have enough evidence to prove this. The evidence can be a legal document known as a Charge for Payment, from which a creditor gives you 14 days to clear your debts. If you do not pay in this time, you can use the document to prove your insolvency.

Another legal document you can use to prove your insolvency is a Statutory Demand.  A statutory demand is a final formal demand that requires you to pay the money you owe your creditors in 21 days. On the day the 21 days are over, you can use the document to prove your apparent insolvency.

  1. A Creditor Applies for Your Sequestration

A creditor can apply for your sequestration if:

  1. You owe them a minimum of £3,000 in unsecured debts
  2. They have served you with a copy of the Debt Advice and Information Package
  3. You are insolvent

The creditor must ask the Sheriff court to declare you bankrupt. The sheriff will then serve you with a Warrant to Cite, informing you that your sequestration case will proceed to court. You can send a representative or attend yourself if you want to prove to the court that you will pay back what you owe in 6 weeks.

  1. Entering Sequestration during a PTD

Your trustee can apply for your sequestration if you do not follow to rules and requirements of your Protected Trust Deed (PTD).  The trustee will submit a petition to the sheriff court to do this. However, this can only be done if your trustee thinks it is in the best interests of your creditors or if you have failed to obey the terms of the deed. Thus, by cooperating with your trustee, you can be able to avoid sequestration.

Sequestration ADvice

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Benefits Of An Sequestration

Reduce Your Monthly Payments
Consolidate your payments into one.
Legally Binding Agreement
Dedicated Account Manager
Stop Creditor contact
Freeze Interest Rates & Charges
How do I Qualify for Sequestration?

Sequestration is worth considering if you are a Scottish resident, and you believe you cannot make to pay back your unsecured debts within a reasonable amount of time. Sequestration helps you clear all your debts in just 12 months. To be qualifying for sequestration, you must also owe a minimum of £3,000 in unsecured debts. Though you can include all your unsecured debts in sequestration, there are some debts you will still have to pay, such as:

  1. Student loans
  2. Court penalties, fines, forfeiture orders or compensation
  3. Obligation to pay on-going child support
  4. Liabilities due to fraud: This includes benefit overpayments

In addition, you cannot include secured debts, such as car finance loans and mortgages in your sequestration. This is because your lender would take back the property the debt was secured against. This means you could risk losing your car or home.  Therefore, it makes no sense to include these kinds of debts in your sequestration.

How Much Does Sequestration Cost?

The cost of your sequestration is deducted directly from your estate and approved by the Accountant in Bankruptcy.  You will not get a separate bill from your debt advisor. In most cases, the initial consultation with a debt advisor is usually free. However, when you enter sequestration, you will have to pay a non-refundable fee to the Sherriff’s Court. The total court fee is currently £200 per person.

Can You Get Car Finance After An IVA?

Just like any other form of credit, this will largely depend on the lender.  It depends on many different factors, such as the value of the car and your affordability. 1 year after your IVA has completed your defaults will be removed from your credit rating, so you would be better waiting so you avoid paying higher interest rates on credit borrowed.

Does Sequestration Affect My Credit Rating?

Like any other debt solution, sequestration will have serious negative effects on your credit rating for the next six years from the date you first start it. Unfortunately, this is unavoidable. The fact that you are bankrupt will be recorded on your credit file. This means that anyone who carries out a credit check against you will see you are bankrupt and will deny you credit. After the six years are over, your record of bankruptcy will be automatically taken off your credit file.

Does An IVA Affect My Credit Rating?

An Individual Voluntary Arrangement remains in your credit files for 6 years (72 months), after 6 years any debts involved in the IVA are removed from your credit score. 

What Can’t I Do During My Sequestration?

Your sequestration will generally last for one year. However, your trustee will still continue to deal with your income payment for three years. During that one year before you are discharged from your sequestration, there are things you cannot do, such as:

  1. You cannot act as a director of a limited company
  2. You are limited to taking further credit
  3. You may not be allowed to hold certain public offices
  4. You must contact your trustee before you can acquire any assets, such as a lottery win or inheritance

How Will My Trustee Deal With My Assets, Particularly My House and Car?

Your trustee will not deal with your rented property or your home if it has no equity. Your home is considered to have no equity if you owe more on mortgage than what it is worth. If your home has equity, it is only that equity that your trustee will be interested in. If there is an asset your trustee can deal with, the asset does not necessarily have to be sold (though it can be). You may propose a third party, such as a relative, friend or family to “buy out” the trustee interest in the asset. You can also opt to buy the property out after a year of discharge.

The buy-out can be made in instalments over a specified period of time. This is mostly how any interest in your home equity or your car would be handled. Most of your other assets will generally be sold to pay back your debts. It is crucial to have a good understanding of how your assets will be dealt with before you commit to entering into a sequestration. Consider, contacting an experienced debt advisor to guide you in this regard.

What Are The Pros And Cons Of Sequestration?

Before you decide whether or not to enter into a sequestration, you may want to consider the pros and cons of sequestration. Some of these are discussed below. As you go through them, remember to consider them in the context of your own situation as they may not all be relevant to your situation.

The Main Pros of Sequestration
  • Your Debt is Written Off

After you are granted sequestration, any responsibility of paying your unsecured debts is taken away from you.  Once you are discharged, usually after 12 months, any outstanding unsecured debts are cleared and you can resume your life debt free.

  • Relatively Cheap to Implement

If you wish to apply for sequestration either via a Certificate for Sequestrationyou only be required to pay an upfront fee of £200.

  • Keep Reasonable Assets

If you are granted sequestration, you’ll be allowed to keep your reasonable household items, such as clothes, household linens, furniture, anything used for cleaning or cooking, children’s toys and educational items.  You can also keep any tools needed for a trade, up to a value of £1,000.

  • Lasts for Just 12 Months

You will normally be in sequestration for just 12 months. After this period is over, you will be cleared from all your unsecured debts and free from the restrictions of sequestration as discussed earlier. Note that if you’re subject to any income payment agreement or order, you will be required to make payments from your income up to three years from the date of your sequestration.

  • No Further Creditor Action

Once your sequestration is approved pressure from your creditors goes away. Your creditors cannot take any further action against you to recover their debts. Additionally, you will not incur additional charges or interest on your outstanding unsecured debts. This gives you a peace of mind knowing that once sequestration is completed you’ll be left debt free.

  • External Assistance

When you enter sequestration, all your assets and estate are effectively handed over to the control of your trustee. Though most people would not want this situation to arise, if your finances have become a real mess, then external assistance can be just what is needed to turn your financial situation around.

The Main Cons of Sequestration
  • Negative Effects on Your Credit Rating

One of the major disadvantages of entering or being forced into a sequestration is that your credit rating will be negatively affected. The record of bankruptcy will remain on your credit file for six years. This means you will have difficulty obtaining further credit during this time.

  • Loss of Control

Entering sequestration is a good indication that an individual has no capacity to repay their unsecured debts. To prove that this is indeed the case, a trustee takes full control of your personal assets, which most people find difficult to deal with.

  • Restrictions on Company involvements

If you enter into a sequestration, you will be banned or barred from being a director of a limited liability company for a period of 12 months. In addition, once your sequestration is granted, you cannot be actively involved in the management, creation, marketing, promotion of any kind of business during that period.

  • Very Limited Credit Options

Once you have been awarded sequestration, you cannot obtain more credit for a specified period of time, usually 12 months.  For various reasons, you are not allowed to borrow more money until the time your finances are in a better order.

  • Publicity

If you are granted sequestration, your details will be added onto the Register of Insolvencies. The insolvency register contains the list of everyone who has been declared bankrupt or has entered into a Trust Deed in Scotland. The register can be accessed publicly through the internet. As such, people looking for you on this register will become aware that you are bankrupt.

  • Property May be Sold

If your home has equity, you will have to give this to your trustee. This may result to the sale of your home unless a family member or friend can raise a similar sum on your behalf which can be given to your trustee.

Sequestration should be considered as a last option for people struggling with their unsecured debts. There many other potential debt solutions available to help you resolve your debt problems beyond sequestration. Before entering into a sequestration, consider consulting an experienced debt expert to know what your options are. If you are looking for a trustworthy debt advisor, call us.

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