What is Sequestration?

Sequestration is the Scottish legal term for personal bankruptcy.

Strictly speaking it is an individuals estate that is sequestrated and an individual who is declared bankrupt although in practice the terms are used interchangeably.

Sequestration offers the opportunity to make a fresh start in circumstances where the debts you owe are overwhelming and there is little prospect that you will ever be able to clear them or make an offer to settle them.

Sequestration is sometimes seen as a last resort since it means any significant assets you may own, such as equity in your home if you are buying it, are likely to be used to help settle your debts. It also places some restrictions on your ability to obtain future credit, carry on business and hold certain public offices. You cannot act as a director of limited company or form a limited company or serve on the management board of a limited company throughout the term of your sequestration.

How does Sequestration work?

These are conditions that must be met BEFORE you can apply for your own sequestration.

You must owe at least £1500 and be able to demonstrate 'apparent insolvency'. The most common examples are if:

A creditor goes to court and gets a decree on your debt and a 'charge for payment' of that debt (14 days notice) has expires without you paying.

OR

You have been served with a 'statutory demand for payment' (21 days notice) and you have not paid it in the time limit.

You can also apply to the court for your own sequestration if a creditor who is owed more than £1500, signs an "oath by creditor" and "concurs" in the petition.

These are the main ways in which you can apply for your own sequestration.

You can petition for your own Sequestration by obtaining the appropriate form from your local Sheriff Court or the office of the Accountant in Bankruptcy. The form is called the 'debtors petition form'. A fee is payable at the time of lodging the petition, currently £63. You will have to provide details of all your assets and liabilities and your income and expenditure.

When you are sequestrated, a Trustee is appointed by the court to administer your estate. The Trustee will be either an Insolvency Practitioner, if one has been nominated to act or the Accountant in Bankruptcy.

The Trustee has various duties, including reporting to the creditors and selling any valuable assets with a view to:

• Paying the costs of managing your sequestration and

• Paying your creditors as much as possible of what you owe them.

• Your trustee may also require you to make some payment from your salary if you have a regular job.

• After a Sequestration your unsecured creditors can take no further action against you, however if you have a mortgage or a secured loan, the secured lender could take action to get his money back. Once you are discharged (usually after three years) your debts are in effect 'written off' - you will no longer be liable. The exceptions are :

• Student Loans received/payable after the date of your sequestration.

• Court fines

• Debts arising from frauds

• Social fund loans or overpayment of benefit may be taken from any current benefits

Your discharge from sequestration does not apply to any debts that you have run up after the date of your sequestration. YOU WILL BE LIABLE TO PAY THESE.

A creditor can also apply for your sequestration if you owe more than £1500, and they can demonstrate your 'apparent insolvency' to the court. It is rare, in consumer debt cases for the creditors to take such an action. Creditors can also take other legal action to recover debt - this could make you 'apparently insolvent'.

How long does Sequestration last?

Usually you will receive an automatic discharge from sequestration after three years. However if you do not co-operate with your Trustee the court can increase the length of your sequestration for up to two years at a time.

Will they take everything I have?

No. In most instances your household goods will not be taken. You will normally be allowed to keep things that are needed for normal day-to-day living - these remain yours and would not transfer to the trustee. If you own a car, the Trustee will take into account its value and whether it is essential to you before deciding whether to remove or sell it. The tools of your trade are normally exempt.

Who will know?

Your Sequestration will be reported in the Edinburgh Gazette. The Trustee will contact your creditors.

Can I have a Bank Account during my sequestration?

Yes, but it should be operated in credit. It is a criminal offence to obtain credit of more than £250 without advising the prospective creditor that you are an undischarged bankrupt.

Will I lose my job / pension?

This will depend on your job. Consult your union / personnel department / pension scheme administrator for advice.

What will happen to my credit rating?

Your Sequestration will be recorded by the credit reference agencies. The length of time it remains on record varies.

Where can I get more information?

The Accountant in Bankruptcy produces a number of useful booklets and leaflets. More information is available from www.aib.gov.uk. There is also a telephone enquiry line 0845 762 6171.

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