Chris had his own business. Everything went running perfectly, but the recession hit him hard. Utility bills built up and his business just wasn’t bringing in enough money.
He also had his wife and daughter to support along with rent to pay. He was trying to keep his home life as normal as possible. Not wanting to worry his wife. He didn’t share his problems and he still took them out on weekends.
“It was quite bad, and from there it just snowballed. It got a bit – a lot – unmanageable,” he says
What is Sequestration?
For the majority of us, when facing financial trouble, the most natural instincts that we choose is trying to fight off the creditors and at the same time trying to satisfy them, to avoid the harassment without resorting to declaring insolvency.
What majority of us don’t realize, is the amount of time spent during these fights and trying to keep your assets backfires. Like a famous musician once said, sometimes it’s good to let go.
Sequestration is a form of insolvency that results in a person’s assets being transferred into the control of an appointed Trustee so that they can be used to satisfy creditors to the greatest extent possible. The term sequestration itself means much the same as bankruptcy in other parts of the UK. Sequestration is the way that you can deal with personal debts which you have no hope of repaying them within a reasonable period of time.
If you are sequestrated, you will no longer be responsible for paying your debt. You will remain in sequestration for 12 months after which any outstanding debt will be written off.
However, sequestration is a serious matter and the proper advice must be taken before deciding to use this solution. If your income is restricted, and you own few assets, “MAP” might be a cheaper and more appropriate route to sequestration.
To qualify for bankruptcy you must:
- Owe at least £3,000.
- Live in Scotland (or have lived here at some point during the past year).
- Not have been bankrupt previously in Scotland during the past five years.
- Be able to pay the £200 application fee.
- Have obtained advice from an “approved money adviser” before applying.
- You’ll also need a Certificate for
Sequestration,unless you are already “apparently insolvent” as a result of a creditor havingtaken you to court for a debt that you have been unable to repay.
How does it work?
According to the Scottish law, you are not allowed to personally apply for insolvency. The law clearly states that you need to get advice from a qualified and professional money adviser. The two major ways you can get access to these people are: Scottish law
- By getting help from Citizens Advice.
- Your local authority money advice team.
- There are many charity organizations who will be able to assist you with this. The best part of this option is, that you will get free debt advice from a qualified advisor.
- Financial insolvency firms operate on a financial basis. It is because of this reason, that they will only be giving advice to you if they are sure that you will be able to honor the agreement and make monthly contributions towards your debts (during the course of a subsequent bankruptcy).
As part of this advice process you may be provided with the Certificate for Sequestration which is often required to make a bankruptcy application. The adviser will also need to complete the first part of your bankruptcy application pack.
The adviser may also register you for a “moratorium” which will protect you from creditor legal action for a period of six weeks. This is to provide time and space for the bankruptcy application and approval process to be completed.
If bankruptcy is the right solution for you, a trustee is appointed to administer the process.
The trustee will look at your circumstances to decide what you can afford to pay towards your debt.
The AiB will review your application and decide whether to accept it. As soon as you are declared bankrupt, you won’t have to deal with your creditors. However, it takes up to sixty days for them to be informed of your sequestration.
Once accepted, your lenders will be made aware and they then can’t contact you for payments throughout the term of your Sequestration.
If you follow the terms to the latter, your sequestration should not last more than 12 months (a year). If you still you will have outstanding unsecured debt from lenders, it will be written off.
In some instances, after your trustee evaluation, you may be required to continue making regular payments to your lenders, even after you have been discharged. This is rare but should be strictly adhered to, only for not more than 48 months (2 years) as per the agreement.
How Does One Apply?
There are currently two options when applying for your own sequestration. The first is the completion of a paper debtor application form with a Money Advisor who may be an Insolvency Practitioner. This is then submitted to the Accountant in Bankruptcy, together with a cheque for the £200 application fee. The Accountant in Bankruptcy will then input it on their system.
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They then review the documentation submitted and request any further paperwork they require to make a decision on whether
The second option is that the form can be completed and submitted online. These speed up the process as it takes out the delay resulting from posting the documents and also eliminates the time it would take the Accountant in Bankruptcy to input the information to the system.
Again they will review the paperwork and request any further documentation they need prior to awarding sequestration. The application fee still needs to be paid prior to the sequestration being awarded, although this can be made online instead of by cheque to save time.
The real advantage of an online application over a postal application is the amount of time that is saved between application and sequestration being awarded.
WHAT ASSETS WILL I HANDOVER TO MY TRUSTEE?
The Trustee is given control of your assets with the option to sell them in order to acquire funding to pay off your creditors. Assets can include:
- Property- Your home may be at risk if there is sufficient equity available to repay some or all of your debt. If your home is rented, it’s also worth checking your tenancy agreement to see if the landlord can evict you under these circumstances.
- Your car- You may be able to retain a vehicle if you need it for work purposes, and its value is less than £3,000
- Money in banks- Money in bank and building society accounts will also need to be handed over, as well as all debit and credit cards. Your bank may decide to close your account(s) altogether, particularly if they are one of your creditors
- Inheritance- Should you inherit money up to four years after the start of your sequestration, or receive any windfall payments such as a lottery win or PPI claim, they must be disclosed to the Trustee, who will use them to repay your creditor
Your trustee may request you to make regular contributions during the whole term of your bankruptcy period.
WHAT ARE SOME OF ITS ADVANTAGES
- All debt solutions come with advantages and disadvantages; the biggest advantage is getting back in control of your finances and becoming debt free
- You’ll save yourself a considerable amount of stress if sequestration is the immediate and most appropriate option
- A financial adviser, Insolvency Practitioner or Money Adviser may look at your finances and recommend you need to apply for sequestration immediately before the situation gets any worse.
You have an Insolvency Practitioner (IP) on Your Side
If you find it difficult to deal with confrontation, you’ll probably find dealing with your creditors very difficult and unpleasant. If you get to the stage where you are doing that and you feel bullied into making payments using money that should go on essentials like heating and food, then you need to talk to a financial advisor as soon as possible.
What Are The Disadvantages?
- If you come into money or assets (for example from an inheritance) you are likely to be required to pay this value to your trustee. This liability exists for four years (even if you have already been discharged).
- Your credit rating will take a knock. For six years after your discharge, your award of bankruptcy will remain on your credit record, making it difficult for you to get credit.
- Assets that you own at the date of your bankruptcy are likely to vest in your trustee. Homeowners (with equity in their properties) might, therefore, find that their home is at risk.
- You will normally be able to retain a vehicle, valued at less than £3,000, provided that you have a reasonable need to operate the vehicle.
- Details about your sequestration will be added to a public register.
- Prior to your discharge, you will not be allowed to take out further credit.
- Following your discharge, your credit rating and ability to source credit will be affected.
- At the discretion of your trustee, you may be required to enter a financial education program.
- Financial education programme- Your Trustee may decide that you need to take part in a financial capability programme to improve your financial awareness, and help to ensure you remain debt-free once discharged from bankruptcy.
- Banned from certain key roles- You will not be able to act as a limited company director, and may not be accepted onto other boards, such as school governors or pension trustees.
- Public register and potential employment issues- The Register of Insolvencies contains details of current sequestrations, plus those discharged during the last two years. This public disclosure could potentially lead to problems with your employer if they see that you are bankrupt – some industries are reluctant to employ staff in this position, particularly those in law enforcement and finance.
- You won’t be able to act as a company director- Once you are sequestrated you cannot take part in the formation, promotion or management of a limited company.
- Your employer may not allow it-If you hold a position of financial responsibility or public trust you may find there is a clause in your employment contract that forbids you to undertake any type of debt management option that would have you declared insolvent.
When Does it End?
When Does it End?
Under normal circumstances, the bankruptcy period should not last more than the 12 months stipulated and in some rare cases, you may actually get discharged later. This would be known as delayed discharged and it’s usually caused by lack of cooperation and not following the set guidelines put up by him.
Beginning April, the first, 2015, getting a discharge immediately after the 12 months was made non-automatic. However; it can be issued by the accountant in bankruptcy at any time after the 12 months, as long as your trustee has no rejections. The process usually involves your trustee sending a report to the Accountant in Bankruptcy and your creditors after the first 10 months.
In the report, the trustee notes any key changes and whether you have been fully co-operative. If the report is positive, the Accountant of Bankruptcy has the obligation to discharge you from insolvency Even if you have been discharged you will need to maintain your DCO for the agreed payment amount for a period of 48 months unless your circumstances change.
Any assets of high value that you may acquire for a period of fours after being declared insolvent, will need to be declared, this is inclusive of any competiton, or lottery wins, high valued gifts or you may be subjects from a will.