What is Sequestration? (Full administration)
Sequestration is the Scottish Term for Bankruptcy. The below section refers to what is known as a Full Administration Sequestration.
When you are sequestrated a trustee is appointed to deal with your estate (effectively your assets, surplus income & debts). Your trustee will be a specialist accountant known as an Insolvency Practitioner or in some cases the Accountant in Bankruptcy a government organisation (AiB).
Your trustee will work out what you can afford to contribute towards your bankruptcy from your spare income after reviewing your income and essential expenditure.
The amount you contribute can change depending on your circumstances and is reviewed on a regular basis or in the event of a change in your financial circumstances. If you do not have any spare income your contribution will be set at zero although you should be aware that if your financial circumstances improve you may later be expected to contribute.
You will usually be expected to contribute for a period of 48 months (this will include months where your contribution has been set at zero).
Any assets that you own will be valued by your trustee and may be sold. This may include your home or motor vehicle but this will depend on the level of equity in them. Equity is the difference in the value of an asset less the value of any security against it, such as a mortgage or the amount outstanding on a hire purchase agreement.
Your trustee will advise you of their intentions to deal with your assets and advise you of any alternatives to them being sold but ultimately your trustee has a legal obligation to your creditors to achieve the value in your assets.
You should note that many essential household items are excluded from being a part of your estate and will not be touched by your trustee. See our article on your belongings that aren't included in a bankruptcy(opens in a new tab). See also the AiB guide to what happens to things you own on bankruptcy from page 14 onwards here (opens as PDF in a new tab).
While you are sequestrated you are subject to certain restrictions on the level of credit you can obtain and in certain offices you can hold; you cannot be a director of a limited company and may be debarred from holding certain public offices such as an MP. Those restrictions only last as long as you are undischarged bankrupt.
If you work with your trustee and comply with their requests then you can expect to be discharged from bankruptcy 12 months after it is awarded. Despite your discharge you still have a duty to co-operate with your trustee after this period until they have finished dealing with your estate as they deal with any of your assets and contribution towards your debt.
You will still be expected to provide your trustee with details of your income and expenditure after your discharge to allow your trustee to work out the level of your contribution.
Once you are sequestrated your creditors will contact your trustee, rather than you about the sums owed. Your trustee will use the money from your estate to pay your creditors a dividend, this is a part payment towards the debt owed.
In rare cases this can mean debts are paid in full but in the majority of cases they will only receive a small percentage of what is owed, any balance left over is legally written off and you cannot be pursued for this. Even if your trustee is unable to pay a dividend to creditors at the end of the sequestration process your creditors must write off what is owed to them.
Certain debts are excluded from being written off after the end of your sequestration such as an ongoing mortgage obligation and certain types of student loans. Any debts that you have incurred since the date of your bankruptcy are not included in your estate and you will remain liable for these.
Speak to a money adviser if you are considering making an application for sequestration as you will require to show you have obtained money advice prior to making an application. You must owe at least £1,500 and not have been declared bankrupt within the last 5 years.
If you owe a creditor £10,000 or over, including any interest and charges, and you have defaulted on your contract, they may take steps to make you Bankrupt. They will require to take court action to do this.
What is a Minimal Asset Process (MAP) Sequestration?
Minimal Asset Process (MAP) is a way of dealing with your debts if you have low income and little or no assets and have debts of under £25,000. It is a route into sequestration which requires you to meet certain criteria. If you meet the criteria it will mean that you will be discharged from bankruptcy after 6 months and you will not be expected to contribute towards your debts. Your creditors will not receive any dividend from a MAP Sequestration. Your Trustee remains in office for a further 6 months after your discharge to finalise the administration of your case and you will be subject to certain restrictions on obtaining credit for this period.
To be eligible for a MAP you must not have a single asset worth more than £1,000, although you can own a motor vehicle valued up to £3,000 as long as this is reasonably required for work or another essential purpose. The total value of your total assets cannot be more than £2,000 (excluding a motor vehicle of £3,000 or under). You must not own house or land.
Your debts must not exceed £25,000 (although you can exclude any debt that would not be discharged by Bankruptcy from this total, e.g. a student loan).
You will also need to have be in receipt of certain benefits for at least 6 months or have been assessed as not required to make a contribution from your income towards your bankruptcy by a money adviser using the common financial tool. A money adviser will also require to issue you with a Certificate for Sequestration which certifies that they have assessed you as being insolvent to allow an application to proceed.
Finally, you must not have been awarded another MAP Sequestration within the last 10 years.
If you have a change of circumstances within the 6 month period of your MAP that means that you no longer meet the criteria, for example you are in a position to start making a contribution or you gain an asset of value, the Accountant in Bankruptcy will convert your MAP Sequestration into a full administration Sequestration as outlined above.
Watch the video below our money adviser Michael Allan gives a summary of sequestration: