Sequestration - Bankruptcy in Scotland

What is a Sequestration?

Sequestration is a Scottish legal term for personal bankruptcy. Bankruptcy starts when someone in debt (a debtor) is declared bankrupt by the Sheriff or the Accountant in Bankruptcy. If you are declared bankrupt, it means that you have to hand over your estate (the things you own), including your home, to your trustee. Your trustee is the person who administers your bankruptcy. You will be able to keep the things that are essential for everyday living. You may be required to make some payment from your income.

It is the duty of your trustee to sell your assets or property and to use the money to:

• pay the costs of managing your bankruptcy; and
• pay your creditors as much as possible of what you owe them.

Your creditors are the people or organisations that are owed money by you. Subject to certain conditions, a creditor can apply to a sheriff to make you bankrupt or you can apply to the Accountant in Bankruptcy to make yourself bankrupt.

You will normally be discharged from the sequestration one year after the date the bankruptcy was awarded. Even though you have been discharged, your bankruptcy will not be finished until your trustee has done everything they need to and they are discharged from their duties.

Once you are discharged you no longer have a personal liability to repay the debts which you had when you were made bankrupt (there are exceptions to this, e.g. student loans, fines, penalties).

What if I own a house?

If you own the house you live in, or any other property, it will transfer to your trustee along with your other assets. Your trustee will always carry out a search of the Land Registers to make sure that you do actually own the property. Your trustee can sell your house or allow your spouse, partner or family member to buy out their interest in it. If your trustee decides to sell it, the house may be sold on the open market. Your trustee must obtain the best price possible.

How do I apply for my own sequestration?

You can apply to the Accountant in Bankruptcy for your own sequestration. This can be done where you owe more than £1,500 and a lender has taken certain legal action against you (typically a Charge for Payment or Statutory Demand which has expired). If a creditor has not taken that action against you, then you must either obtain one of your creditor’s formal written consent to the Sequestration, or if you meet the criteria, apply for a Low Income Low Asset Sequestration.

What is the criteria for a Low Income Low Asset Sequestration?

Low income means gross weekly income of no more than the standard national minimum wage for a 40 hour working week. As at March 2008 this is equivalent to £220.80 a week. Any pensions or maintenance payments that you receive are also counted in with your income.

If you receive income support, income-based jobseekers' allowance or working tax credits you will be treated as meeting the low income test, even if your actual income is more than £220.80 a week.

Low assets means that you have no single asset worth more than £1,000 and your total assets are not worth more than £10,000. In addition, it means that you must not own or jointly own a house or any other property or land.

What are the conditions for a creditor making me bankrupt?

• If you owe someone money they may be able to make you bankrupt. Your creditors can ask a sheriff to award bankruptcy against you if: and you owe them at least £3,000 - this will include any fees, interest or charges added to what you owe;
• They have sent you a copy of the Scottish Government's Debt Advice and Information Package; and
• You are apparently insolvent (typically this occurs if a lender has taken certain legal action against you for example a Charge for Payment or Statutory Demand which has expired). However, a creditor can also prove apparent insolvency if you have signed a trust deed which has not become protected or if you have formally advised your creditors in writing that you are unable to pay your debts.

What restrictions are there during my Sequestration?

You must not...

• Get credit for goods or services for more than £500 from any lender or supplier without telling them that you are bankrupt. You may be guilty of a criminal offence if you do not tell them;
• Get any credit for goods or services without telling the lender or supplier that you are bankrupt if you already have credit of £1,000 in total. You may be guilty of a criminal offence if you do not tell them;
• Start up a limited company or be involved in the day-to-day management of a limited company;
• Act as a Member of Parliament, as a member of any local council, a Justice of the Peace or a member of a school board.