How does sequestration work?
Starting sequestration bankruptcy in Scotland is a big step to take, and certainly one you should never take lightly. However, it’s not always a decision you might make on your own. This is because other people can apply for your sequestration.
You can enter into sequestration in three main ways. They are:
- you apply for sequestration bankruptcy yourself,
- a creditor declares you bankrupt through a Sheriff Court, or
- you don’t adhere to the terms of your Protected Trust Deed (PTD) your trustee applies for your sequestration.
There are some restrictions on you during sequestration bankruptcy. We’ll explain these on our ‘Is sequestration right for me?’ page.
Applying for your own sequestration
To apply for your own sequestration, you must:
- owe more than £3,000 in unsecured debts,
- live in Scotland currently or have lived in Scotland at some point in the last year, and
- not already have been bankrupt in Scotland during the last five years.
We’ll take you through the qualifying criteria in more detail on our ‘How do I qualify for sequestration?’ page.
You’ll also need:
- a Certificate for Sequestration (you can get this from an approved debt advisor)
- a creditor to agree to your sequestration – this is called creditor concurrence, or
- to prove that you are in ‘apparent insolvency’.
Apparent insolvency means you can’t afford to pay your debts when they’re due. You’ll need evidence to show this.
This evidence can be a legal document called a ‘charge for payment’ from a creditor giving you 14 days to pay what you owe. If you don’t pay in this time, you can use it to prove you’re insolvent.
You can also use a legal document called a ‘statutory demand’ to show you’re insolvent. This is a final formal demand for payment that gives you 21 days to pay. On the day it expires, you can use this document to prove apparent insolvency.
If you get a charge for payment or a statutory demand, these should be served by either a Messenger-at-Arms or a sheriff officer.
You’ll also need to pay the application fee of £200 to the Accountant in Bankruptcy (AiB). There aren’t any reductions for this – you need to pay the full fee before your sequestration can start.
When you apply for bankruptcy, you can decide your trustee. This can either be someone from the AiB or an insolvency practitioner.
Your trustee oversees your sequestration, from when it starts until you’re discharged. At the start of your sequestration, they’ll ask you all about what you’ve got coming in and what you’re spending. You’ll have to provide evidence for this e.g. a wage slip to show your income and a bank statement for your expenditure.
Every six months, you’ll have to complete a ‘current state of affairs’ form – this will show your circumstances at that particular time.
Trustees charge a fee for their work but you might not have to pay them. If a sheriff officer agrees that paying the fees would cause you to struggle with your finances, they might cut them.
If a creditor applies for your sequestration
One of your creditors can apply for sequestration on your behalf. They can only do this if:
- you owe at least £3,000 in unsecured debts,
- you are insolvent, and
- they have provided you with a copy of the ‘Debt Advice and Information Package’.
They’ll have to ask a sheriff to make you bankrupt. The sheriff will then serve you with a ‘warrant to cite’ telling you your sequestration case will go to court. You can attend this or send a representative.
If you’re looking to avoid sequestration, you should do this. This is because you can show if you’re going to be able to repay what you owe within six weeks. And if the sheriff agrees with you, they won’t make you bankrupt.
Being made bankrupt during a PTD
If you are currently in a PTD and you don’t comply with the rules of this, it’s possible your trustee could apply for your sequestration. They’ll have to submit a petition to the sheriff court to do this.
This is why it’s really important that you stick to the terms of your PTD. Your trustee will only petition for your bankruptcy if they think it’s in the best interests of your creditors, or that you’ve failed to keep up with your obligations. By co-operating with your trustee and your creditors, you should be able to avoid sequestration.
After 12 months, you should be discharged from your sequestration. This legally means that your sequestration is now over and you can start to rebuild your finances.
However, if you’re making a contribution to your trustee, you have to keep paying this. This is known as a Debtor Contribution Order (DCO) and it lasts for 48 months. You’ll only have to pay this if your trustee thinks you can afford to – you won’t ever be asked to pay if you can’t afford it.
Not sure if sequestration will be an option for you? Check out our page on ‘How do I qualify for sequestration?’ to find out if you meet the criteria.Continue to the next section How do I qualify for sequestration?