There’s are three types of sequestration in Scotland, but only really two for people wishing to make themselves insolvent. The other version is mainly used by creditors wishing to make a debtor bankrupt in Scotland.
The two types of sequestration you could be applicable for are Low Income Low Asset (LILA) and certificate of sequestration.
What Is Sequestration?
The name for entering bankruptcy in Scotland is a sequestration. There are different routes to enter Scottish sequestration however, this will be determined by your personal and financial situation. Your creditors can also place you into sequestration too.
The sequestration will last for 1 year. You could be asked to pay your disposable income into your sequestration for 3 years. If you own a house or other asset, such as a car, you may be allowed to keep these. It will depend on your ability to continue to pay these assets and whether there is any equity which could be released for the benefit of your creditors.
Who Is Applicable for a LILA?
To enter a LILA there is a £200 charge. The paperwork is available from the Accountant in Bankruptcy who regulates all sequestration solutions.
To be suitable for a LILA you must reach certain criteria:
- You must not be a home owner.
- Your earnings must be below the minimum wage (not including tax credits or benefits).
- You have no asset over £1,000, though the value of your car can be up to £3,000.
- Your combined assets must not exceed £10,000.
- LILA is suitable for people on a low income (less than £247.60 per week) with minimal assets.
The solution lasts for a year and at the end of this period of time any remaining debt is written off, however it will affect your credit rating for 6 years. This means you will struggle to get credit within this period of time. When you are in sequestration you will be appointed a trustee and you must adhere to certain rules.
A person would automatically qualify for the LILA route into sequestration, even if the income is above £247.60, if the income is solely from income support, jobseekers or other state benefits.
If you inherit money or have a financial windfall then you must inform your trustee. The trustee will make a decision on what should happen with the money. This would include any money reclaimed on PPI (payment protection insurance).
Who Should Enter a Certificate of Sequestration?
The cost to enter a certificate of sequestration is £200 – the same as a LILA. A certificate of sequestration is the correct route into sequestration if you do not meet the above criteria for a LILA. Often, a certificate of sequestration is suitable for people who have a house in negative equity and are required to enter sequestration to resolve their unsecured debt problems. If you enter a certificate of sequestration, and are working, you may be asked to contribute towards your sequestration for 3 years.
Payments are based upon your income and expenditure and what is left over this is known as your disposable income. Your payments become known as an income payment order. If your disposable fluctuates so will your income payment order. Similar to the LILA, any assets will be assessed for realisable equity. If you come into any money then your trustee must be made aware immediately.
To apply for a certificate of sequestration you
- Must live in Scotland or have lived there within the last year.
- Owe at least £1,500 of unsecured debt (credit cards, personal loans, payday loans etc)
- and be able to pay the £200.00 fee upon application.
Quick Guide to Sequestration
What’s the solution: A route to deal with unsecured personal debts which lasts for 1 year. The two debtor-led routes into bankruptcy are a LILA and certificate of sequestration. Each will depend on the person’s personal and financial situation.
What are the benefits:
- You will no longer be chased by your creditors.
- If applicable, your monthly payments will be affordable.
- Once bankrupt, you will no longer have to make your monthly payments to your debts.
- After the solution is completed you will be debt free.
What are the negatives:
- You could be asked to sell your assets to repay the creditors.
- Your credit file will be damaged for 6 years.
- You cannot obtain more than £500.00 of credit without prior consent from your trustee.
- You cannot be a director of a limited company.
- Bankruptcy can affect your current job or future employment opportunities.
- You should ask your trustee about any other restrictions.
If you believe you qualify for this solution then you should seek debt advice. This ensures you are aware of all the pros and cons of sequestration in Scotland and seek independent advice to be sure it is the best solution for you.