People considering Sequestration are often confused and have many questions about the process and its impact. We have collected some of the most frequently asked questions (FAQs) and attempted to provide some guidance. A Sequestration is a legal agreement that can help the residents of Scotland deal with their debt problems. It involves the transfer of a debtor’s estate to a trustee, which ultimately benefits creditors as well as the debtor. Sequestration is a process set out in legislation that a debtor can apply for without having to face legal action from their creditors. Some common questions about these contracts are answered in the following paragraphs;
What is sequestration?
What is Sequestration?
Sequestration is a type of debt management solution that writes off your debts permanently by declaring to your creditors that you are insolvent and you will not be fulfilling the repayment contract you have with them. You can either apply to be sequestrated yourself if you meet all of the criteria or one of your creditors can apply to have you sequestrated.
Will my friends and family find out?
You can never be certain that people will not find out about your sequestration, but they would probably already have an idea if they started looking. If any of your friends or family are owed money by you or work for a company that you owe money to, they could receive notices from your trustee, but they would receive notice of most other debt management solutions. Once your sequestration is awarded, details will be recorded on the Register of Insolvencies, which is a searchable public register. Someone would have to be looking for you in the first place to find you on this record, so you would be unlucky if your friends or family found out from this source.
Will my employer be told?
In most cases, no-one will tell your employer unless you want them to know, although for obvious reasons if you want to keep your sequestration under wraps it is wise to be careful who you share the information with at work. If you owe your employer money they will be notified by your Trustee. Also, in some professions and certain other jobs which require you to complete “fitness and propriety” declarations, you may have to disclose your sequestration. This is because some jobs are subject to regulations or insurance requirements that require you to disclose details of any sequestration, or any other debt settlement agreement you may make with your creditors.
Will I have to sell my house?
Not necessarily. If you have equity in your home you may have to find a way to release that by a re-mortgage or if you own your home jointly, your spouse, partner or friend could buy out your share. You could apply to the Homeowner Support Scheme (formerly Mortgage to Rent). If you are in negative equity or there is not enough equity in your house to make it worthwhile to sell then it will not be included in the asset sale, although your creditors may request that it is considered up to three years after your sequestration to see if the value has risen at all. If none of these options is appropriate in your circumstances your Trustee can sell your house to realise your share of any equity in it.
What is an Insolvency Practitioner?
An Insolvency Practitioner is someone who is licensed by one of several Recognised Professional Bodies to oversee certain formal insolvency processes. An Insolvency Practitioner has the financial and legal expertise to oversee the administration and technicalities involved with personal and corporate insolvencies. They can act as a mediator and expert adviser when you need help dealing with debt, and will deal with the courts and creditors so you don’t have to.
What debts can be included?
Most unsecured debt can be included, such as balances on credit and store cards, overdrafts, and personal loans. Certain classes of unsecured debt are excluded, such as money payable in matrimonial proceedings, benefit overpayments, student loans and any debt incurred through court cases, such as fines. Anything that is secured cannot be included, such as mortgages or any other loans secured on your home or car.
My washing machine is on HP - will I lose it?
Unless a friend or family member can pay off the outstanding loan amount so it becomes your legal property, you will have to hand back anything you have on hire-purchase as you do not own it outright. You should check any agreements carefully, because some monthly or weekly payment agreements are unsecured loans and you may be entitled to retain the goods that the loan paid for.
Is it expensive to be sequestrated?
Applying for Sequestration is relatively inexpensive when compared to some other solutions and it costs £200 to file your application, also known as a petition. Any subsequent fees and charges that are incurred in the administration of your case, such as valuing and selling your assets to pay creditors, is taken from the money generated by selling the assets before it goes to creditors.
Do I have to sequestrate myself or can a creditor do it?
A creditor can instigate sequestration proceedings if you have failed to pay a debt, however if you have few assets and they cannot see a way to obtain the money they are owed, they may decide not to do so and simply sit back and add charges and interest to your account balances.. In 2008 the laws relating to Scottish Bankruptcy were changed. Previously many people used to wait until a creditor decided to make them bankrupt, but many creditors decided some sums were simply not worth recovering, which left thousands of people just watching their debts rise through interest rates and charges. The new legislation introduced in 2008 made it easier for debtors to take control of their finances and sequestrate themselves.
In addition, you have to show that you are unable to pay your debts (insolvent) so that creditors know that you are not just avoiding your obligations. Some circumstances, such as signing a trust deed and receiving a statutory demand and leaving it unpaid for more than 21 days are evidence of “apparent insolvency”, but the clearest evidence for your own petition is a “Certificate of Sequestration”.
This is a certificate that is valid for 30 days and confirms that you are insolvent. It can be issued by authorised money advisors, insolvency practitioners and qualified members of their staff. The money advisor or insolvency practitioner cannot charge for the certificate but they can charge for advice that they have to give before issuing it. If you meet the LILA criteria: you owe more than £1,500; earn the National Minimum Wage or less for a 40 hour working week; have no more than £10,000 in assets, with none individually worth more than £1,000; and own no land or property; then you do not have to show that you are insolvent before you can petition for sequestration.
Why do I need a Certificate of Sequestration?
If you decide to petition for your own Sequestration you have to show the Accountant in Bankruptcy, that you are insolvent and cannot pay your debts. To do this, you need a Certificate of Sequestration that you send off with your petition for sequestration. An approved Money Advisor or Insolvency Practitioner can look over your financial information and provide you with a certificate if they believe you are insolvent based on the paperwork you have provided. If you meet the LILA criteria: you owe more than £1,500; earn the National Minimum Wage or less for a 40 hour working week; have no more than £10,000 in assets, with none individually worth more than £1,000; and own no land or property; then you do not have to show that you are insolvent before you can petition for sequestration.
How long can I use the Certificate Of Sequestration for?
The Certificate Of Sequestration is only valid for you to use for a petition for 30 days because it is a snapshot of your current finances – after 30 days your circumstances may have changed and your financial information is no longer up-to-date.
I have mortgage arrears and am being repossessed - will sequestration stop this?
No. Sequestration cannot stop your home from being repossessed as a mortgage is classed as a secured debt. Only unsecured debt can be included in sequestration proceedings.
Will my car be taken?
Your car is one of your assets and depending on its value and condition, your Insolvency Practitioner may ask you to buy a less expensive model and put the difference towards paying your creditors. As a rough rule of thumb, a car worth less than £3,000 that is needed to get you to work with be excluded. If your car is on finance, the terms of the contract will determine whether the finance company can repossess it, as sequestration can trigger special conditions in some agreements.
This list of Sequestration FAQs has covered some of the most common questions. While there are some disadvantages to entering into a formal insolvency solution, most professionals agree that in the right circumstances the benefits can far outweigh them.