This is declaring bankruptcy for debtors in Scotland. Sequestration could help the debtor write off up to 90% off your unsecured debts.
An individual could apply for sequestration for themselves. Creditors could also force debtors to go in sequestration. A debtor must owe £3,000 for a creditor to be able to sequester a debtor. Assets that you own could be sold to compensate for the debt.
Advantages of Sequestration. For a short-period of time, the debtor could be debt-free, because their debts would likely be written off, and most unsecured debts are included in a sequestration. Credits cannot contact or chase the debtor for the money that they owe.
Disadvantages of Sequestration. The assets would be sold to pay off their debt. It would also be difficult to take new credits or loans for 6 years since declaring for sequestration. Moreover, a debtor’s employment could be affected, like being barred for a promotion.
Eligibility for Sequestration. A debtor must live in Scotland, have an unsecured debt that’s worth more than £1,500, and haven’t been in sequestration in 5 years.
Sequestration covers debt that are considered unsecured or “non-priority” debts. These include:
- Personal loans
- Bank overdrafts
- Payday loans
- Store cards
- Credit cards
The Cost of Sequestration. A £150 fee is charged for sequestration. Originally for £200, this was reduced until September 2020. This would be paid to the Accountant in Bankruptcy (AiB). The AiB is the governing body for the processes of individual bankruptcy in Scotland.
With the help of benefits or charities, the fee could be reduced to £0. Also, you could pay in installments and you’d need to pay the full amount before an application can be processed.
The extreme option. Sequestration may be the best option for a debtor if their total debts is more than the value of their assets, and there’s no clear chance of settling the debts in the future. If a debtor could still make payments or sell off a part of their asset, then maybe sequestration may not be the best option for them. It allows you to escape your debts and have a new start when the debtor ends up with no other options.
You and Your IP. A key component of the sequestration procedure will be the foundation of a relationship and a comprehension among the debtor and insolvency practitioner (IP). At first, the job of the IP will be to evaluate whether the debtor is qualified to enter sequestration under the provisions of the most recent enactment in Scotland.
The basic inquiries would include whether they are certainly insolvent and unable to take care of their debts, and whether a Trust Deed or a Debt Arrangement Scheme may be increasingly fitting given the debtor’s circumstance.
When it is determined that sequestration is the most ideal path forward for the debtor, the IP will help them in finishing their debtor application pack and issue them a Certificate of Sequestration whenever required and present their application to the Accountant in Bankruptcy.
From that point, the AiB will process their application within five working days and see that a Trustee is designated to the debtor’s undertakings. The debtor can either request their own IP to go about as their Trustee in specific conditions or one will be designated for their benefit to manage their case.
Once a trustee has been appointed. The arrangement of a Trustee to the debtors undertakings is a fundamentally significant part with regards to a sequestration situation.
What happens is, the Trustee assumes responsibility for any assets that the debtor owes and examines their capacity to repay the creditors to which they owe debts without collateral.
The Trustee will at that point choose the most ideal option for the debtor to settle their outstanding debts by selling any asset with worth and mapping out a reimbursement plan for what’s to come.
The Trustee likewise assumes liability for liaising with the creditors in a manner that should mean they understand they wouldn’t likely be paying in full.
With strict measures, the Trustee has 60 days to notify each creditor regarding the debtor’s sequestration and that the monetary undertakings are basically being reconstituted from that premise.
It may be the case that creditors will look to get in touch with the debtor and request for a payment that they owe. In any case, sequestration is a legitimate, legal process and the debtor is not obliged to respond to creditors in any capacity other than through the Trustee delegated to the debtor’s concerns.
Sequestration for people with low income and minimal assets. The government offers the MAP (Minimal Asset Process) bankruptcy, which has a similar purpose as a sequestration.
Highlights of MAP Bankruptcy
- Although MAP bankruptcy is a formal legal process, a court appearance is not required.
- MAP bankruptcy costs £90 to apply for (£50 until September 2020), which is cheaper than sequestration. This fee is also payable to the Accountant in Bankruptcy
- Most unsecured debts are included in an MAP bankruptcy
- Creditors are barred from chasing a debtor, and from pursuing court actions once the MAP bankruptcy is approved. Also, creditors aren’t allowed to add more interest and charges to the debts
- The debtor could usually be discharged from their MAP bankruptcy after six months, after which most debts will be legally written off
Lowlights of MAP Bankruptcy
- Your credit rating will be affected for six years from the day your MAP bankruptcy begins
- For business owners, bankruptcy could take a toll on their trade, and could affect their application for a credit for their products or services.
- Some debts, such as student loans, on-going child maintenance and court fines are excluded from the debts that are written off.
- If the debtor is on rent, their landlords may evict them or decline them for a renewal of tenancy agreement
- Bankruptcy can affect a debtor’s employment
- Bank accounts are frozen and debtors could only open a basic bank account
With Getting out of Debt UK, we’ll help you determine whether sequestration or MAP bankruptcy is best for you, and you’d still avoid economic challenges. Contact us today to arrange a free consultation.