What is Sequestration?
03 Aug 2009 Tell a Friend
Sequestration is the Scottish legal term for bankruptcy. It is a legally binding status that you can apply for if you are a resident of Scotland and you are unable to pay off your debts. Although there are serious short-term financial implications of sequestration (such as being unable to gain credit) and you are likely to lose your valuable assets, you will be able to clear all of your debts during the sequestration period and as such, it should be seen as a way of starting afresh with your finances.
Sequestration lasts for a minimum of three years, after which you are 'discharged' from the restraints of the agreement as long as you have kept to all the repayment terms within that time. Sequestration aims to release all of your available funds (minus your essential living expenses) so that your creditors can be at least partly repaid. Anyone is eligible for sequestration as long as they are a Scottish resident and owing £1,500 or more.
A petition for sequestration must be initially made to the Accountant in Bankruptcy, who are in charge of handling personal bankruptcy in Scotland. The application, called a Petition, would either be made by you personally (a 'debtor's petition') or by one or more of your creditors (a 'creditor's petition'). If you dispute the petition that has been brought against you, it is your responsibility to try and reach a settlement with your creditor or creditors before the sequestration proceeds.
Setting up a sequestration usually takes 2 -3 months, and if the application for sequestration is successful, your estate must be handed over to a Court-appointed Trustee. This Trustee will be an experienced Insolvency Practitioner. Unless you employ a private-sector Insolvency Practitioner, the Accountant in Bankruptcy would also act as your Trustee.
It is the Trustee's job to release all of the available equity from your assets, and therefore if you are a homeowner, it is likely that you will need to sell your property to pay off your debts. If any surplus is owing once all the equity from your estate has been used, you would be expected to also contribute all of your disposable income (what is left after your essential living costs are covered) for the duration of the sequestration period.
The short-term consequences of Sequestration
When you file for sequestration, your status must legally be reported in the local press and in the Edinburgh Gazette, and you will be unable to obtain credit of more than £250 without first telling the lender that you are an undischarged bankrupt. You are not allowed to act as the Director of a company during the sequestration period, and if you trade in any business under another name you are legally required to inform your Trustee and all others involved in your sequestration.