Sequestration A Guide
When a person who lives in Scotland is unable to
pay off his or her debts this is the "last resort". The decision
to go into sequestration (equivalent of bankruptcy in England) must not
be taken lightly. In our opinion you should explore ALL OTHER OPTIONS FIRST.
Once
bankruptcy had a stigma, now it is much less so. But it is still a major
step. Read this site in detail and or take professional advice BEFORE
taking this step.
Sequestration involves the transfer of your assets
and property into the hands of a Trustee for the benefit of the lenders.
The Trustee in Sequestration has a duty to sell the assets/property that
are collected. The Trustee may also seek a voluntary contribution from
your income if you are in regular employment and are earning more than
you need to live.
A creditor can initiate sequestration if you owe them money (over £1,500)
This is the main insolvency procedure for individuals in Scotland and
begins with a petition to the sheriff's court. This can be lodged by:
- The debtor (that's you) if their total indebtedness
is in excess of £1,500
- A creditor whose debt is in excess of £1,500
- A trustee under a failed
trust deed
If you lodge the petition yourself, the sheriff will
award the sequestration and this will be the date of commencement of the
sequestration. This can be done where you owe more than £1,500 to
creditors and where a lender has served a Charge for Payment and fourteen
days notice have elapsed or, a creditor has issued a Statutory Demand
and 21 days have elapsed.
If the petition is lodged by either a creditor or a trustee, a warrant
to cite will be formally served on the debtor.
This warrant will call the debtor to appear before the sheriff's court.
Sequestration can be avoided if the debtor can produce real evidence that
the debt has been paid or he has the means to pay or compound the debt
with the creditor(s), be warned though it is vital to be able to show
strong reasons why you should not be made bankrupt.
If this cannot be done or if you do not appear in court, the sequestration
will be awarded and will be deemed to have commenced from the date the
court issued the warrant to cite.
With some exceptions, all assets, including the debtor's
home (if owner-occupied), are vested with the trustee and he has a duty
to sell the assets to realise value for the creditors.
If you earn more than you need to live then the trustee may also request
a voluntary contribution from earnings as well as any other assets that
may materialise during the period of the sequestration, such as an inheritance
or a redundancy payment.
During the sequestration, the debtor is restricted
in a number of ways including being unable to incur credit over £250
without declaring that they are an undischarged bankrupt. This can often
rule out the possibility of continuing to trade as a sole trader.
Additionally the debtor in sequestration cannot act as a director of a
limited company, or as a governor or a member of a school board or as
a member of Parliament.
The debtor is automatically discharged from the sequestration
after three years unless he or she does not cooperate with the Trustee.
In some cases the period of the sequestration can be extended by the court
for up to two years.
Self Sequestration
This can be done where you owe more than £1,500
and a lender has served:
- a Charge for Payment and fourteen days notice have
elapsed or
- a Statutory Demand and 21 days have elapsed or
- you have received an Earnings Arrestment as a result
of a Charge for Payment
Advantages of Sequestration
- It crystallises the position
- and it stops creditors pursuing you
- It ends the worry
- You will not have to make
further payments to your lenders.
- You may expect to be discharged
after 3 years and will then be free of debt (unless you have built up
new debt since the date of your Sequestration).
Disadvantages of Sequestration
- If you own any valuable property,
including your matrimonial home you will probably lose them.
- You may not obtain credit
over £250 unless you tell the new lender that you are an un-discharged
bankrupt.
- You may not be a director
of a company.
- If you are in paid employment
you may have to make a contribution for "excess" earnings.
- If you inherit any money or
property after the date of your Sequestration and before the date of
your discharge you will have to surrender it to your Trustee.
- Your credit rating will be
damaged
- It is a public event - which
can be advertised in local press
- Secured debt, CSA and fines
are not included in bankruptcy
- It's a court process - that
can be frightening
- You have to report to the
Trustee and adhere to his wishes.
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