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These days, many consumers find themselves being unable to repay their unsecured personal debts valued at more than £1,500. When this happens, it is sometimes possible to enter sequestration as a type of insolvency. This can help deal with the bulk of your financial stress.
Sequestration is a type of insolvency that will result in any assets you have being transferred into an appointed trustee’s control. This enables them to be used to repay creditors to the fullest possible extent. In effect, sequestration is equivalent to bankruptcy in Scotland.
Sequestration is intended as a final resort and when a consumer is genuinely not able to repay their outstanding unsecured debts in any way whatsoever. It is possible to voluntarily enter sequestration if a consumer submits a debtor application because they want to gain control of their financial situation. Alternatively, creditors have the power to force an individual to enter sequestration so they can ensure that outstanding debts are repaid either partially or in full. In order for a creditor to sequestrate an individual, the amount owing to them must be equal to or more than £3,000.
You will need to develop a relationship with an insolvency practitioner (IP). They will assess your financial situation to determine whether you will qualify for sequestration or not. If appropriate, your IP will provide you with a debtor application pack and a Certificate of Sequestration. This is submitted to the Accountant in Bankruptcy (AiB), who will process everything within 5 working days and have a Trustee appointed to you.
Your appointed Trustee will manage any assets you have and see what ability you have to repay outstanding unsecured debts to your creditors. They decide what the best method will be settle outstanding debt as much as possible by selling any valuable assets and setting up a workable payment plan for them.
The Trustee also communicates with your creditors to inform them that you will most likely not be able to fully repay them. They have 60 days to let each of your creditors know that you have been sequestrated.
In some cases, your creditors may still try to demand payment from you. However, once sequestered, you do not have to respond to any creditors other than through your Trustee.
Depending on your level of affordability, you could still be required to make scheduled payments towards outstanding accounts once you have been discharged from the sequestration. However, this stipulation will only need to be adhered to for a period of four years after your arrangement has been put in place. A calculator called the Common Financial Tool will be used to determine how much you can afford to repay your creditors.
Provided that you fully cooperate with your Trustee while your sequestration is in place, you will normally be relieved from it 12 months after initially being declared bankrupt. However, if you fail to fulfill your Trustee’s requirements, you could find your discharge date being postponed.
The basis for sequestration is that it only applies in cases where a consumer owes unsecured debts to one or more creditors, but is unable to repay them. This is why the process involves transferring control of your assets to a Trustee. It is up to the Trustee to find an appropriate resolution that is fair to all concerned parties.
This means that if you own property, it will most likely enter the sequestration process. This means your home may need to be sold so that funds from there can be used to pay towards outstanding debts. However, this could depend on the current value of your home and the costs associated with selling it- your Trustee will make the final decision in this regard.
After entering sequestration, you may be required to sell your vehicle. However, this may not always be the case because sequestration is actually intended to provide you with the best possible opportunity to repay outstanding debts. This means that if you rely on a vehicle to get to and from work, your Trustee will take this into consideration before making a decision.
There are alternative procedures in place for individuals who enter sequestration that have low income levels and little to no assets. They will normally be declared bankrupt by means of the Minimal Asset Process (MAP).
You only qualify for this option if you owe more than £1,500 but less than £17,000 worth of unsecured debt. Your assets will also need to be valued at less than £2,000 (no single asset may be worth more than £1,000). Your income will also need to be entirely from benefits or be determined as being insufficient to make any contribution to your bankruptcy according to the Common Financial Tool calculator. You may also not own property or have been declared bankrupt in the past five years (or 10 years if you have already been through a MAP bankruptcy).
With an MAP bankruptcy, you will normally be discharged after six months. However, some restrictions with regards to credit will remain in place for a further six months thereafter.
This is the main benefit of sequestration because it enables you to make a fresh financial start. Although there are downsides to sequestration, it is sometimes the only way for some people to resolve their financial problems.
Because an appointed Trustee communicates with your creditors on your behalf, you will no longer receive harassing phone calls or messages.
Sequestration will have a negative effect on your credit rating, and this will remain with you for six years after being discharged from it. Once the six years have passed, you will be able to start repairing your credit rating again.
After discharge, your credit options will be severely limited in that you won’t be able to obtain credit of more than £2,000 (and for up to six months if it was an MAP sequestration).
You will have to hand assets to your Trustee when entering sequestration. This can have an unsettling effect on you and your family.
Once sequestered, you won’t be allowed to act as a company director any longer.
It is essential that you obtain professional advice before deciding to enter sequestration, as there may be alternative options that will be more suited to your financial situation.