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A Guide to Bankruptcy in Scotland Part 1
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DoshDolt
Posts: 128 Forumite
Please note that I am NOT an expert. I have been through BR myself and have written this out to help others. The following information has been gathered from different sources over the last 18 months. For guidance only.
First and foremost it is essential that you obtain advice from a free debt advice agency such as the Citizen’s Advice Bureaux. They will set you up with a debt counsellor who will be able to guide you through the maze and they will advise you on the best possible course of action to follow that will suit your particular needs.
Sequestration: Factors to consider
What is Sequestration?
Sequestration is the Scottish legal term for bankruptcy. Sequestration is a legal process, which results in you being formally declared bankrupt by the Accountant in Bankruptcy (AiB) or a court.
When your estate is sequestrated your assets are transferred into the hands of a trustee, who will sell them with the aim of sharing the proceeds among your creditors. If you applied for your sequestration on or after 1st April 2008, you will usually be automatically discharged from the sequestration after 1 year and, at this point, many of the outstanding debts will be wiped out and you can start afresh, free from debt. If you were sequestrated, or your creditors took steps to sequestrate you prior to 1st April 2008, you will usually be discharged from the sequestration after 3 years.
When to think about sequestration?
Sequestration is only one of the options available to a person with major debt problems. It may be appropriate if you are under pressure from creditors to repay your debts but there is little prospect of you being able to do so.
It may be possible for you to apply for a trust deed for your creditors, as an alternative to sequestration. A trust deed is a voluntary agreement between you and your creditors to repay what you owe and it has fewer serious consequences than sequestration.
Before applying for sequestration you will need to establish the following information: -
The total amount of debt owed by you. This figure should already be available in the creditors sheets. You should check the figures are up-to-date.
What stage each creditor is at in pursuing the debt.
What potential there is to negotiate with creditors.
What your total income is.
What potential there is to sell property or possessions.
Whether you have a stable income from employment - if so, it may be more appropriate for you to set up a repayment programme, DAS Debt Payment Programme or to grant a trust deed for your creditors, rather than become sequestrated.
What the attitude of your employer (if applicable) is to sequestration.
Are you eligible for legal advice and assistance?
Sequestration may be an option for you if any one or more of the following factors apply: -
The size of the total debts is large (more than £1,500) and it will take you a long time to repay the debt.
You cannot keep to negotiated repayments
Your creditors refuse to negotiate
You are under excessive stress because of the debts
You are unlikely to have increased resources in the near future
You do not have enough to pay interest charges on your debts
One or more of your creditors have taken legal action to arrest your wages or bank account.
In considering the factors in the paragraph above, no one factor should outweigh the others, for example, it may be inadvisable for you to choose sequestration as an option simply because of the size of your debt. After considering these factors you should then consider the advantages and disadvantages of sequestration.
If you are unable to place a value on all of your assets you might have to ask your debt counsellor to refer you to an insolvency practitioner.
Consequences of sequestration
If you become sequestrated there can be serious consequences. It is therefore important that you spend time running though the information in the paragraphs below, to enable you to consider the full consequences and make an informed choice about whether or not to proceed to sequestration.
It is possible, in certain circumstances, for your creditor(s) or a trustee acting under a trust deed, to sequestrate you. If this is the case, you should use the information in the following paragraphs to prepare yourself for the consequences of enforced sequestration.
How much will it cost?
If you choose to become sequestrated the costs will depend on how the application is made. You may be able to apply for sequestration by completing the application forms on your own, or by referral to an insolvency practitioner.
If you complete the application yourself, you will have to pay a fee of £100.
If you use an insolvency practitioner, the insolvency practitioner’s fee will be paid eventually from your assets. The level of the fee will depend on whether the insolvency practitioner simply gives advice to you, or agrees to be appointed as your trustee. However, insolvency practitioners will not undertake the role of trustee if you have insufficient assets or income to meet their costs.
As a general rule, an insolvency practitioner will hold an initial meeting with you, free of charge. If the case does proceed to sequestration then, as a general rule, if the insolvency practitioner is to be the trustee s/he will look for a minimum of £1,500 plus VAT and outlays to become available from the realisation of your estate or from a contribution from your income. The level of fee will be substantially greater than this if there is a business involved, or if there are any complicating factors surrounding either the realisation of the estate or in dealing with creditors.
Will I/we have to go to court?
If you apply to become sequestrated, you will make your application to the Account in Bankruptcy (AIB) and will not have to appear in court. If your creditors apply for your sequestration, they will petition the court, although you will not usually have to appear in court.
The only exceptions to this are if the sheriff requires further information; or the person appointed by the court as trustee thinks that you are being uncooperative or dishonest with the information that you have provided and asks for an examination in court. This happens very rarely but if it does, the trustee can decide if the examination is to be in public or in private.
Will there be publicity?
Sequestration notices are not advertised in the local or national press. Instead both sequestration and trust deeds have to be listed in an official publication called the Edinburgh Gazette which is used to inform creditors and credit agencies. It is not on public sale at local newsagents.
Can someone find out that you have been sequestrated or have a trust deed?
The Edinburgh Gazette has a website with all the issues from 2004 available on it. The names and addresses of individuals who have a trust deed or have been sequestrated are listed in the issue of the Gazette relevant to the month in which they were granted a sequestration or a trust deed. It is possible to search the Edinburgh Gazette website using someone’s name and reach the notice of the individual’s sequestration or trust deed and their details. It is a legal requirement that someone who has a trust deed or has been granted a sequestration has to be listed in the Edinburgh Gazette website. It is extremely unlikely that a member of the public using a search engine such as Google on the Internet would easily access such details.
Sequestration’s are also recorded on a public register called the Register of Insolvencies and remain on the Register until one year after the trustee has completed their duties. Anyone can search the Register of Insolvencies but there is a charge for doing this.
Do my family have to be told?
In most cases the family members who live with you will have to be told about the sequestration. Other relatives and friends may have to be told if you owe them money. If you are using an insolvency practitioner, s/he may be able to talk to the family about the sequestration if they will be affected, for example, by the sale of property.
Can I/we go to prison?
You will not go to prison for being sequestrated, unless you commit a criminal offence that is connected to your financial affairs. The type of offences that can result in you being prosecuted and sent to prison are, for example, deliberately being untruthful to an accountant who is/was running your business affairs; fraud; or concealing the existence of funds or valuable possessions from the trustee.
You must be aware that a detailed assessment of your financial affairs is required if a sequestration is to take place and that certain past actions by you might become a criminal offence.
During sequestration you also have certain responsibilities and that certain actions during sequestration will be deemed to be criminal offences.
Following discharge from a sequestration, you may have certain restrictions placed upon you by way of a Bankruptcy Restrictions Order (BRO) or a Bankruptcy Restrictions Undertaking (BRU). Breach of a BRO or BRU is a criminal offence.
If you are in any doubt about the wisdom of anything you have done or not done, you should discuss this with the trustee. Sequestration is not intended to provide a means for punishing you for being unable to run your affairs competently. Rather it is intended to provide a means of sorting out a financial mess. The offences created by the bankruptcy laws are intended to deal with people who have, for example, been dishonest in their dealings or shown a blatant disregard for other people’s money or property.
If a trustee in a sequestration suspects that you are concealing assets from her/him, s/he has the power to apply to the court for a search warrant.
What happens to the debts?
If you choose to become sequestrated, a person called a trustee takes over the task of dealing with all your debts and creditors. In most cases, a public official called the Accountant in Bankruptcy will be the trustee and s/he may appoint an agent to act on his/her behalf. In other cases an insolvency practitioner may act as trustee, for example, in cases where there are sufficient funds or assets to meet her/his costs.
Fuel debts
If there are fuel account arrears the electricity or gas company is treated like any other creditor under a sequestration. They have no right to try and by-pass a sequestration by continuing to receive arrears payments through, for example, a fuel direct arrangement or powercard meter calibration. A trustee will normally be able to stop a fuel company behaving in this way.
If the gas or electricity has been cut-off for non-payment of bills you should apply for it to be re-connected without having to pay the arrears. The trustee will be able to confirm that you are bankrupt.
If the re-connection of gas or electricity applies to your business premises, the supplier may make it a condition of re-connection that the trustee will be responsible for all future supplies.
Community charge/council tax arrears
If you owe community charge or council tax arrears before the sequestration this is treated like any other debt with the local authority becoming one of the creditors. The local authority is not able to use its debt enforcement powers after a sequestration. You are still normally liable to pay council tax for the period after sequestration started, but see the paragraph below.
If you arranged to pay your council tax by instalments, but did not make the payments on time, you may have lost the right to pay by instalments, and become liable to pay the whole year’s tax. This debt is treated like any other. Because the whole year’s liability forms a claim in sequestration, you are not liable for any payments towards council tax for the rest of that financial year, so long as you remain sequestrated.
Hire purchase
Most hire purchase agreements contain a clause, which allows the creditor to repossess the goods if you are sequestrated. The creditor will do this unless the trustee is prepared to guarantee the payments. The trustee may do this in the case of a car if it is essential to your work and you can make contributions from surplus income, which are more than the cost of the car.
You pay maintenance
If you are responsible for paying maintenance (either aliment or periodic allowance) to a spouse, civil partner, ex-spouse, ex-civil partner or child under a court order or child support assessment or legally binding agreement, you will have to continue to pay this. Any arrears of maintenance which are legally enforceable will be included in the debts dealt with under the sequestration.
What happens to the debts after discharge?
In most cases of sequestration which were applied for on or after 1st April 2008, you will be automatically ‘discharged’ (that is, freed from debts) after one year, whether or not all the debts have been paid. Sequestration’s, that became effective prior to 1st April 2008, will, in most cases, be discharged after three years. If any debts are outstanding from the start of the sequestration you are not liable to pay these after discharge.
There are however certain exceptions to this general rule. There are some debts that you will not be discharged from any obligation to pay. Creditors who are owed these debts may take action to recover their money at any time after discharge.
Student loans
If the date of your sequestration was before 1st April 2008 and student loan arrears were included in the sequestration, the Student Loans Company will, together with the other creditors, have a claim on your estate. You will be discharged from any liability to repay the student loan when you are discharged from the sequestration.
If the date of your sequestration was on or after 1st April 2008, and student loan arrears were included in the sequestration, the Student Loans company will, together with the other creditors, have a claim on your estate. You will not be discharged from your liability to repay the student loan when you are discharged from the sequestration.
If you have received a student loan after the date of your sequestration, the Student Loan Company will not be considered a creditor with a claim under the sequestration. You will continue to be liable to repay the loan during and after you has been discharged from the sequestration. The student loan will also not be taken into account (neither as income nor capital) when it is decided what income you have available to pay to creditors in the sequestration.
What happens to the creditors?
When you choose sequestration, all the people or companies to whom you owe, or may owe, money (called creditors) have to be told. You should then not have to deal with any creditors because this is the responsibility of the trustee in sequestration. There may be a time lag between the order being made and the creditors being informed. If creditors contact you during this period, you should refer them to the trustee.
What happens to my home?
On sequestration what happens to your home depends on whether it is owned or rented.
Home is rented
If you are a tenant, whether or not you lose the home depends on whether the tenancy agreement contains a clause which invalidates it in the event of sequestration; there are rent arrears before the sequestration; you pay rent regularly after sequestration.
Does sequestration cancel a tenancy agreement?
Some tenancy agreements include a clause that allows the landlord to end the agreement if the tenant is sequestrated. If the agreement does include such a clause you should be aware that the landlord would have clear grounds for eviction if sequestration takes place. A landlord who wanted to enforce such a clause would still need to apply to court for a possession order.
Rent arrears before sequestration
If you are a sole tenant and there are rent arrears before the date of sequestration, they are frozen along with most other debts; and any arrears outstanding at the end of the sequestration will be effectively cancelled.
If there is a joint tenancy, the tenant who is not sequestrated becomes responsible for the total arrears. If this other tenant has debts, s/he should be encouraged to seek advice about them.
The landlord may try to use pre-sequestration rent arrears as a basis for applying for a possession order and carrying out an eviction. There has been a case (endnote 1) where the sheriff decided that the landlord was entitled to recover possession for non-payment of rent, even though the landlord could not enforce payment because of the sequestration. The policies of landlords vary. Some landlords tell their tenant that possession proceedings will be started unless some regular repayments are made towards the arrears. If this happens you should discuss it with the trustee.
The Scottish Government has issued guidance to local authorities that they are not entitled to use the threat of eviction to seek recovery of rent arrears.
The trustee may be able to help negotiate with the landlord. Regular rent payments could be made in future, because the trustee would recognise them as a necessary living expense and the trustee can point this out to the landlord.
Paying rent after sequestration
Sequestration does not free you from an obligation to pay rent for the period after the date of sequestration. If you do not pay rent regularly the landlord could use this as a basis for starting possession proceedings.
Home is owner-occupied
Under a sequestration the trustee takes over responsibility for your home, or your share of the home, if you are a joint owner. The award of sequestration is recorded in the Register of Inhibitions and Adjudications, which effectively prevents you from selling the home.
If you have valuable assets other than your home, (i.e. a business with plant or machinery, or antiques), it may be that, when these are sold, there is enough money to pay all your debts and the costs of the sequestration proceedings. However where this is not so and you own your own home, the property will usually have to be sold and the proceeds used to pay creditors.
This does not mean that the house is sold at once and you have to move out of the home immediately. The date when the house is sold, who initiates the sale, and how it is sold, all depend on the individual circumstances. In some cases you may still be able to continue to occupy the home, (i.e. until the house is sold, or a spouse purchases a half-share).
If you are in mortgage arrears from a period before the sequestration but possession proceedings have not started, you should not negotiate with the lender, but leave this to the trustee. The trustee may be able to help by pointing out that your ability to pay regularly in future is being established. You should be made aware that making mortgage payments after sequestration does not give you any rights to ownership of the house (which is now held by the trustee), or to occupy the house. You should not make an agreement to re-organise the mortgage as such a decision now rests with the trustee.
If you do not live alone
If the home is jointly owned by you and someone else the trustee will usually offer to sell your interest in the house to the other person. If the other person cannot, or will not, buy your share, the trustee may apply to court for an Act of Division and Sale. An Act of Division and Sale is issued by a Sheriff and will specify the terms on which the occupants are to be evicted to enable the sale to take place.
If the home is wholly owned by your partner (or some other person), the trustee will investigate the period of the previous five years to establish whether or not the title to the house is genuine, and not obtained with money provided by you. This is the case even if you and your partner were married or civil partners but have legally separated. Where the title is genuine, the trustee will have no legal interest in the home, which will remain the property of the partner or other person.
If you have a family living in the home (husband/wife; civil partner; heterosexual partner and/or children), there are safeguards to protect them, whether or not the partner jointly owns the home. The trustee must apply to the court for an order to sell the house and the court may, if requested by your partner, postpone the order for sale for up to twelve months.
However, if the application for an order for sale is made more than a year after the trustee’s appointment, the house will be sold unless there are exceptional circumstances. The partner can still apply to the court at this stage for the sale to be delayed.
When deciding whether a family home should be sold, the court must consider whether there are exceptional circumstances -
The reason for the possible twelve months delay is to give your family time to find suitable alternative accommodation. If the family has not been able to do this within the year, this would not, in itself, be reason for further delay.
If the trustee’s interest in the property is small, the trustee may give your partner/friends/relatives the opportunity of arranging finance to enable you to pay the amount to the trustee. However, if alternative finance has not been arranged within the year, the trustee is unlikely to grant further delay unless there are exceptional circumstances.
If the trustee is applying for a court order to sell the home, your partner should be advised to get independent expert legal advice. S/he may be able to raise enough money to buy your share in order to keep the family house.
If the trustee doesn’t take any action in relation to the debtor’s family home within 3 years of the date of sequestration, then it must be returned to the debtor.
Delayed sale
The trustee will have no interest in selling the property if it is of no value to you; for example, where the whole value belongs to a building society as a mortgage. The building society can still decide to sell the home and may do this if you are in arrears with mortgage payments. However, the home is still an asset and if prices rise it may be sold in the future by the trustee, even after your sequestration has been discharged because the trustee remains in post until all assets have been dealt with. However, if the trustee doesn’t take any action in relation to your family home within 3 years of the date of sequestration, then it must be returned to you.
Rehousing
If you sell your home to avoid sequestration, you may be regarded as intentionally homeless and therefore not qualify for rehousing by the local authority. In some situations it may be better to become sequestrated and allow the trustee to force the sale if you need to benefit from the homelessness legislation. You should not simply move out to let the trustee sell the home.
If you need rehousing under the homelessness legislation, you must refuse to move until the trustee obtains a court order. At the court hearing you need not argue against the court order but you must not agree to the court order. You should apply to the local authority housing department homelessness section as soon as homelessness becomes a possibility, and before moving out.
Endnotes
www.nationaldebtline.co.uk/
www.citizensadvice.org.uk/
www.cccs.co.uk/
First and foremost it is essential that you obtain advice from a free debt advice agency such as the Citizen’s Advice Bureaux. They will set you up with a debt counsellor who will be able to guide you through the maze and they will advise you on the best possible course of action to follow that will suit your particular needs.
Sequestration: Factors to consider
What is Sequestration?
Sequestration is the Scottish legal term for bankruptcy. Sequestration is a legal process, which results in you being formally declared bankrupt by the Accountant in Bankruptcy (AiB) or a court.
When your estate is sequestrated your assets are transferred into the hands of a trustee, who will sell them with the aim of sharing the proceeds among your creditors. If you applied for your sequestration on or after 1st April 2008, you will usually be automatically discharged from the sequestration after 1 year and, at this point, many of the outstanding debts will be wiped out and you can start afresh, free from debt. If you were sequestrated, or your creditors took steps to sequestrate you prior to 1st April 2008, you will usually be discharged from the sequestration after 3 years.
When to think about sequestration?
Sequestration is only one of the options available to a person with major debt problems. It may be appropriate if you are under pressure from creditors to repay your debts but there is little prospect of you being able to do so.
It may be possible for you to apply for a trust deed for your creditors, as an alternative to sequestration. A trust deed is a voluntary agreement between you and your creditors to repay what you owe and it has fewer serious consequences than sequestration.
Before applying for sequestration you will need to establish the following information: -
The total amount of debt owed by you. This figure should already be available in the creditors sheets. You should check the figures are up-to-date.
What stage each creditor is at in pursuing the debt.
What potential there is to negotiate with creditors.
What your total income is.
What potential there is to sell property or possessions.
Whether you have a stable income from employment - if so, it may be more appropriate for you to set up a repayment programme, DAS Debt Payment Programme or to grant a trust deed for your creditors, rather than become sequestrated.
What the attitude of your employer (if applicable) is to sequestration.
Are you eligible for legal advice and assistance?
Sequestration may be an option for you if any one or more of the following factors apply: -
The size of the total debts is large (more than £1,500) and it will take you a long time to repay the debt.
You cannot keep to negotiated repayments
Your creditors refuse to negotiate
You are under excessive stress because of the debts
You are unlikely to have increased resources in the near future
You do not have enough to pay interest charges on your debts
One or more of your creditors have taken legal action to arrest your wages or bank account.
In considering the factors in the paragraph above, no one factor should outweigh the others, for example, it may be inadvisable for you to choose sequestration as an option simply because of the size of your debt. After considering these factors you should then consider the advantages and disadvantages of sequestration.
If you are unable to place a value on all of your assets you might have to ask your debt counsellor to refer you to an insolvency practitioner.
Consequences of sequestration
If you become sequestrated there can be serious consequences. It is therefore important that you spend time running though the information in the paragraphs below, to enable you to consider the full consequences and make an informed choice about whether or not to proceed to sequestration.
It is possible, in certain circumstances, for your creditor(s) or a trustee acting under a trust deed, to sequestrate you. If this is the case, you should use the information in the following paragraphs to prepare yourself for the consequences of enforced sequestration.
How much will it cost?
If you choose to become sequestrated the costs will depend on how the application is made. You may be able to apply for sequestration by completing the application forms on your own, or by referral to an insolvency practitioner.
If you complete the application yourself, you will have to pay a fee of £100.
If you use an insolvency practitioner, the insolvency practitioner’s fee will be paid eventually from your assets. The level of the fee will depend on whether the insolvency practitioner simply gives advice to you, or agrees to be appointed as your trustee. However, insolvency practitioners will not undertake the role of trustee if you have insufficient assets or income to meet their costs.
As a general rule, an insolvency practitioner will hold an initial meeting with you, free of charge. If the case does proceed to sequestration then, as a general rule, if the insolvency practitioner is to be the trustee s/he will look for a minimum of £1,500 plus VAT and outlays to become available from the realisation of your estate or from a contribution from your income. The level of fee will be substantially greater than this if there is a business involved, or if there are any complicating factors surrounding either the realisation of the estate or in dealing with creditors.
Will I/we have to go to court?
If you apply to become sequestrated, you will make your application to the Account in Bankruptcy (AIB) and will not have to appear in court. If your creditors apply for your sequestration, they will petition the court, although you will not usually have to appear in court.
The only exceptions to this are if the sheriff requires further information; or the person appointed by the court as trustee thinks that you are being uncooperative or dishonest with the information that you have provided and asks for an examination in court. This happens very rarely but if it does, the trustee can decide if the examination is to be in public or in private.
Will there be publicity?
Sequestration notices are not advertised in the local or national press. Instead both sequestration and trust deeds have to be listed in an official publication called the Edinburgh Gazette which is used to inform creditors and credit agencies. It is not on public sale at local newsagents.
Can someone find out that you have been sequestrated or have a trust deed?
The Edinburgh Gazette has a website with all the issues from 2004 available on it. The names and addresses of individuals who have a trust deed or have been sequestrated are listed in the issue of the Gazette relevant to the month in which they were granted a sequestration or a trust deed. It is possible to search the Edinburgh Gazette website using someone’s name and reach the notice of the individual’s sequestration or trust deed and their details. It is a legal requirement that someone who has a trust deed or has been granted a sequestration has to be listed in the Edinburgh Gazette website. It is extremely unlikely that a member of the public using a search engine such as Google on the Internet would easily access such details.
Sequestration’s are also recorded on a public register called the Register of Insolvencies and remain on the Register until one year after the trustee has completed their duties. Anyone can search the Register of Insolvencies but there is a charge for doing this.
Do my family have to be told?
In most cases the family members who live with you will have to be told about the sequestration. Other relatives and friends may have to be told if you owe them money. If you are using an insolvency practitioner, s/he may be able to talk to the family about the sequestration if they will be affected, for example, by the sale of property.
Can I/we go to prison?
You will not go to prison for being sequestrated, unless you commit a criminal offence that is connected to your financial affairs. The type of offences that can result in you being prosecuted and sent to prison are, for example, deliberately being untruthful to an accountant who is/was running your business affairs; fraud; or concealing the existence of funds or valuable possessions from the trustee.
You must be aware that a detailed assessment of your financial affairs is required if a sequestration is to take place and that certain past actions by you might become a criminal offence.
During sequestration you also have certain responsibilities and that certain actions during sequestration will be deemed to be criminal offences.
Following discharge from a sequestration, you may have certain restrictions placed upon you by way of a Bankruptcy Restrictions Order (BRO) or a Bankruptcy Restrictions Undertaking (BRU). Breach of a BRO or BRU is a criminal offence.
If you are in any doubt about the wisdom of anything you have done or not done, you should discuss this with the trustee. Sequestration is not intended to provide a means for punishing you for being unable to run your affairs competently. Rather it is intended to provide a means of sorting out a financial mess. The offences created by the bankruptcy laws are intended to deal with people who have, for example, been dishonest in their dealings or shown a blatant disregard for other people’s money or property.
If a trustee in a sequestration suspects that you are concealing assets from her/him, s/he has the power to apply to the court for a search warrant.
What happens to the debts?
If you choose to become sequestrated, a person called a trustee takes over the task of dealing with all your debts and creditors. In most cases, a public official called the Accountant in Bankruptcy will be the trustee and s/he may appoint an agent to act on his/her behalf. In other cases an insolvency practitioner may act as trustee, for example, in cases where there are sufficient funds or assets to meet her/his costs.
Fuel debts
If there are fuel account arrears the electricity or gas company is treated like any other creditor under a sequestration. They have no right to try and by-pass a sequestration by continuing to receive arrears payments through, for example, a fuel direct arrangement or powercard meter calibration. A trustee will normally be able to stop a fuel company behaving in this way.
If the gas or electricity has been cut-off for non-payment of bills you should apply for it to be re-connected without having to pay the arrears. The trustee will be able to confirm that you are bankrupt.
If the re-connection of gas or electricity applies to your business premises, the supplier may make it a condition of re-connection that the trustee will be responsible for all future supplies.
Community charge/council tax arrears
If you owe community charge or council tax arrears before the sequestration this is treated like any other debt with the local authority becoming one of the creditors. The local authority is not able to use its debt enforcement powers after a sequestration. You are still normally liable to pay council tax for the period after sequestration started, but see the paragraph below.
If you arranged to pay your council tax by instalments, but did not make the payments on time, you may have lost the right to pay by instalments, and become liable to pay the whole year’s tax. This debt is treated like any other. Because the whole year’s liability forms a claim in sequestration, you are not liable for any payments towards council tax for the rest of that financial year, so long as you remain sequestrated.
Hire purchase
Most hire purchase agreements contain a clause, which allows the creditor to repossess the goods if you are sequestrated. The creditor will do this unless the trustee is prepared to guarantee the payments. The trustee may do this in the case of a car if it is essential to your work and you can make contributions from surplus income, which are more than the cost of the car.
You pay maintenance
If you are responsible for paying maintenance (either aliment or periodic allowance) to a spouse, civil partner, ex-spouse, ex-civil partner or child under a court order or child support assessment or legally binding agreement, you will have to continue to pay this. Any arrears of maintenance which are legally enforceable will be included in the debts dealt with under the sequestration.
What happens to the debts after discharge?
In most cases of sequestration which were applied for on or after 1st April 2008, you will be automatically ‘discharged’ (that is, freed from debts) after one year, whether or not all the debts have been paid. Sequestration’s, that became effective prior to 1st April 2008, will, in most cases, be discharged after three years. If any debts are outstanding from the start of the sequestration you are not liable to pay these after discharge.
There are however certain exceptions to this general rule. There are some debts that you will not be discharged from any obligation to pay. Creditors who are owed these debts may take action to recover their money at any time after discharge.
Student loans
If the date of your sequestration was before 1st April 2008 and student loan arrears were included in the sequestration, the Student Loans Company will, together with the other creditors, have a claim on your estate. You will be discharged from any liability to repay the student loan when you are discharged from the sequestration.
If the date of your sequestration was on or after 1st April 2008, and student loan arrears were included in the sequestration, the Student Loans company will, together with the other creditors, have a claim on your estate. You will not be discharged from your liability to repay the student loan when you are discharged from the sequestration.
If you have received a student loan after the date of your sequestration, the Student Loan Company will not be considered a creditor with a claim under the sequestration. You will continue to be liable to repay the loan during and after you has been discharged from the sequestration. The student loan will also not be taken into account (neither as income nor capital) when it is decided what income you have available to pay to creditors in the sequestration.
What happens to the creditors?
When you choose sequestration, all the people or companies to whom you owe, or may owe, money (called creditors) have to be told. You should then not have to deal with any creditors because this is the responsibility of the trustee in sequestration. There may be a time lag between the order being made and the creditors being informed. If creditors contact you during this period, you should refer them to the trustee.
What happens to my home?
On sequestration what happens to your home depends on whether it is owned or rented.
Home is rented
If you are a tenant, whether or not you lose the home depends on whether the tenancy agreement contains a clause which invalidates it in the event of sequestration; there are rent arrears before the sequestration; you pay rent regularly after sequestration.
Does sequestration cancel a tenancy agreement?
Some tenancy agreements include a clause that allows the landlord to end the agreement if the tenant is sequestrated. If the agreement does include such a clause you should be aware that the landlord would have clear grounds for eviction if sequestration takes place. A landlord who wanted to enforce such a clause would still need to apply to court for a possession order.
Rent arrears before sequestration
If you are a sole tenant and there are rent arrears before the date of sequestration, they are frozen along with most other debts; and any arrears outstanding at the end of the sequestration will be effectively cancelled.
If there is a joint tenancy, the tenant who is not sequestrated becomes responsible for the total arrears. If this other tenant has debts, s/he should be encouraged to seek advice about them.
The landlord may try to use pre-sequestration rent arrears as a basis for applying for a possession order and carrying out an eviction. There has been a case (endnote 1) where the sheriff decided that the landlord was entitled to recover possession for non-payment of rent, even though the landlord could not enforce payment because of the sequestration. The policies of landlords vary. Some landlords tell their tenant that possession proceedings will be started unless some regular repayments are made towards the arrears. If this happens you should discuss it with the trustee.
The Scottish Government has issued guidance to local authorities that they are not entitled to use the threat of eviction to seek recovery of rent arrears.
The trustee may be able to help negotiate with the landlord. Regular rent payments could be made in future, because the trustee would recognise them as a necessary living expense and the trustee can point this out to the landlord.
Paying rent after sequestration
Sequestration does not free you from an obligation to pay rent for the period after the date of sequestration. If you do not pay rent regularly the landlord could use this as a basis for starting possession proceedings.
Home is owner-occupied
Under a sequestration the trustee takes over responsibility for your home, or your share of the home, if you are a joint owner. The award of sequestration is recorded in the Register of Inhibitions and Adjudications, which effectively prevents you from selling the home.
If you have valuable assets other than your home, (i.e. a business with plant or machinery, or antiques), it may be that, when these are sold, there is enough money to pay all your debts and the costs of the sequestration proceedings. However where this is not so and you own your own home, the property will usually have to be sold and the proceeds used to pay creditors.
This does not mean that the house is sold at once and you have to move out of the home immediately. The date when the house is sold, who initiates the sale, and how it is sold, all depend on the individual circumstances. In some cases you may still be able to continue to occupy the home, (i.e. until the house is sold, or a spouse purchases a half-share).
If you are in mortgage arrears from a period before the sequestration but possession proceedings have not started, you should not negotiate with the lender, but leave this to the trustee. The trustee may be able to help by pointing out that your ability to pay regularly in future is being established. You should be made aware that making mortgage payments after sequestration does not give you any rights to ownership of the house (which is now held by the trustee), or to occupy the house. You should not make an agreement to re-organise the mortgage as such a decision now rests with the trustee.
If you do not live alone
If the home is jointly owned by you and someone else the trustee will usually offer to sell your interest in the house to the other person. If the other person cannot, or will not, buy your share, the trustee may apply to court for an Act of Division and Sale. An Act of Division and Sale is issued by a Sheriff and will specify the terms on which the occupants are to be evicted to enable the sale to take place.
If the home is wholly owned by your partner (or some other person), the trustee will investigate the period of the previous five years to establish whether or not the title to the house is genuine, and not obtained with money provided by you. This is the case even if you and your partner were married or civil partners but have legally separated. Where the title is genuine, the trustee will have no legal interest in the home, which will remain the property of the partner or other person.
If you have a family living in the home (husband/wife; civil partner; heterosexual partner and/or children), there are safeguards to protect them, whether or not the partner jointly owns the home. The trustee must apply to the court for an order to sell the house and the court may, if requested by your partner, postpone the order for sale for up to twelve months.
However, if the application for an order for sale is made more than a year after the trustee’s appointment, the house will be sold unless there are exceptional circumstances. The partner can still apply to the court at this stage for the sale to be delayed.
When deciding whether a family home should be sold, the court must consider whether there are exceptional circumstances -
- and must allow, if possible, your family the time to arrange somewhere suitable to live before the property is sold;
- and must allow, if possible, time for you to arrange another way of obtaining the value of your interest in the home;
The reason for the possible twelve months delay is to give your family time to find suitable alternative accommodation. If the family has not been able to do this within the year, this would not, in itself, be reason for further delay.
If the trustee’s interest in the property is small, the trustee may give your partner/friends/relatives the opportunity of arranging finance to enable you to pay the amount to the trustee. However, if alternative finance has not been arranged within the year, the trustee is unlikely to grant further delay unless there are exceptional circumstances.
If the trustee is applying for a court order to sell the home, your partner should be advised to get independent expert legal advice. S/he may be able to raise enough money to buy your share in order to keep the family house.
If the trustee doesn’t take any action in relation to the debtor’s family home within 3 years of the date of sequestration, then it must be returned to the debtor.
Delayed sale
The trustee will have no interest in selling the property if it is of no value to you; for example, where the whole value belongs to a building society as a mortgage. The building society can still decide to sell the home and may do this if you are in arrears with mortgage payments. However, the home is still an asset and if prices rise it may be sold in the future by the trustee, even after your sequestration has been discharged because the trustee remains in post until all assets have been dealt with. However, if the trustee doesn’t take any action in relation to your family home within 3 years of the date of sequestration, then it must be returned to you.
Rehousing
If you sell your home to avoid sequestration, you may be regarded as intentionally homeless and therefore not qualify for rehousing by the local authority. In some situations it may be better to become sequestrated and allow the trustee to force the sale if you need to benefit from the homelessness legislation. You should not simply move out to let the trustee sell the home.
If you need rehousing under the homelessness legislation, you must refuse to move until the trustee obtains a court order. At the court hearing you need not argue against the court order but you must not agree to the court order. You should apply to the local authority housing department homelessness section as soon as homelessness becomes a possibility, and before moving out.
Endnotes
- Monklands D.C. v McAllister, Airdrie Sheriff Court, 19 November 1991
- Accountant in Bankruptcy Guidance notes s6.18,l for the post April 2008 reforms at www.aib.qov.uk
www.nationaldebtline.co.uk/
www.citizensadvice.org.uk/
www.cccs.co.uk/
You have to fight, fight and fight again just to get what's yours.
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Comments
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These three excellent posts should be stickiedDogs have owners...my cat has slaves...0
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These three excellent posts should be stickied
Hi xocbc,
Many thanks for your kind words.
These posts were previously passed to fermi to be stickied, but he was concerned about copyright. So I rewrote them as they now appear. Maybe you could pass this on for me?
Kind regards,
DDYou have to fight, fight and fight again just to get what's yours.0 -
Just bumping this up.You have to fight, fight and fight again just to get what's yours.0
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Just bumping this up again!You have to fight, fight and fight again just to get what's yours.0
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Its very helpful thanks.Beneficial Claims / We Fight Any Claim / Money Worries / Yes Loans are all the same Scam company.
Do not do business with any of them!!0 -
Just bumping this up again!You have to fight, fight and fight again just to get what's yours.0
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Bumping this up.You have to fight, fight and fight again just to get what's yours.0
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Bumping this one!0
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Bumping this up the list!!!You have to fight, fight and fight again just to get what's yours.0
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bump because its differnt in scotland0
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