What is Sequestration in Scotland and How Does it Work?

If you’re struggling with debt and you’ve looked into ways of writing off what you owe, you may have come across the term ‘Sequestration’. Sequestration is a type of bankruptcy available to people who live in Scotland – and it can be a useful way to write off debt that could otherwise take years to clear.

Here, we’ll explore Sequestration in more detail. We’ll answer some common questions about how Sequestration works, what type of debts can be included, and some pros and cons to think about.

Sequestration meaning

While other parts of the UK have bankruptcy, Scotland has Sequestration. The two processes are very similar.

Like bankruptcy, you need to work with an insolvency practitioner (IP) throughout the process. The IP acts as an appointed ‘trustee’ and your estate becomes ‘sequestrated’. This means the trustee takes control of the things you own to help you deal with the people and companies you owe money to.

This type of arrangement is similar to a Trust Deed as it also lasts for four years. However, a Trust Deed is only suitable for people with a certain level of disposable income, whereas Sequestration can be a better option if you don’t have enough disposable income to pay off your debts in a reasonable amount of time.

How long does Sequestration last in Scotland and what's involved?

Sequestration usually lasts for four years. However, if you co-operate fully, most of what’s involved can be tied up at the end of one year.

During the Sequestration process, your trustee looks into whether the things you own should be sold to raise funds to help settle the debts you owe.

This could mean selling your home, however, an IP would be unlikely to recommend Sequestration as an option if your home was at risk. Instead, your IP would usually explore options that allowed you to release equity from your home. Don’t worry though; if selling your property was likely to be a possibility, you’d get to know in advance and decide whether or not you wanted to go ahead.

At the end of the first year, the Accountant in Bankruptcy (Scotland’s government agency responsible for overseeing the whole process) may ‘discharge’ you from the process. The only thing that would continue for the following three years would be any payments you were expected to make.

Throughout the arrangement, the IP will communicate and negotiate with your creditors (the people you owe money to) on your behalf. When the process is complete, any outstanding debts that have not been settled are written off. In some cases, this can mean writing off up to 90% of your debts.

What can be included in Sequestration?

Sequestration is designed to help people handle ‘unsecured personal debts’ – things like personal loans, payday loans, credit cards, and arrears relating to household bills.

This means financial agreements that are secured against property or an item (mortgages, hire purchase loans, car PCP agreements) cannot be included.

Sequestration can include the following types of debt:

  • Personal Loans
  • Credit Cards
  • Overdrafts
  • Council Tax Arrears
  • Payday Loans
  • Outstanding BIlls
  • Income Tax Arrears
  • Money Owed to Family or Friends
  • Catalogue or Store Cards
  • Energy and Water Bill Arrears
  • Tax Credit or Benefits Overpayments

How to apply for Sequestration in Scotland

Debt solutions like Trust Deeds and Sequestration require an approved money advisor or Insolvency Practitioner to work on your behalf. This is a way of making sure anyone considering the process gets debt advice from a fully qualified professional.

If it feels like it’s going to be the right way to tackle your creditors and debt problems, you will have to confirm that you:

  • have debts of more than £1,500
  • have not been subject to Sequestration in the last five years
  • have lived in Scotland for at least six months

The IP or money advisor you talk to about your application will be able to explain what comes next and support you in submitting your application. The official application costs £200.

Is Sequestration right for you?

Like all formal debt solutions, Sequestration isn’t right for everyone – so it’s important that you get professional debt advice if you’re considering it.

On the one hand, it may take you a while to rebuild your credit rating after Sequestration – but on the other hand, you could be debt-free in four years or less. What’s more, as soon as your arrangement is approved, you won’t be contacted again by any of the companies or organisations you owe money to.

If you’d like to learn a little more about Sequestration, our helpful team will be able to answer all your questions. Everyone’s circumstances are a little different – but we’ll be able to explain how a debt solution could work specifically for you.

Pros and cons of Sequestration

Like all debt solutions and arrangements, Sequestration has some advantages and disadvantages. We’ve listed some pros and cons for you to consider, so you can decide whether or not Sequestration could be a good option for you.

Advantages of using a Sequestration

  • Most unsecured debts will be included
  • Your creditors do not have to agree to the process
  • You won’t hear anything more from your creditors
  • Your creditors can’t chase you or take action against you
  • All your unsecured debts are usually written off, although you may be asked to make a contribution while the arrangement is in place
  • You can be debt-free in a fairly short amount of time

Disadvantages of using a Sequestration

  • Your credit rating is likely to go down, as the arrangement will be recorded on your credit file for six years
  • You cannot be a company director during the process, and you cannot be made bankrupt in certain jobs – like the police force, prison services, or financial services roles
  • The scheme is only available in Scotland, so is not available to residents in England, Wales, or Northern Ireland
  • If you have assets (like property or vehicles), there’s a chance these could be sold to release funds to pay your creditors