Cash Q&A: Sequestration | Protected Trust Deeds

I have heard the term “sequestration” is used in Scotland. What would it mean if I was sequestrated? SJ, Dunbar

A: Sequestration is the Scottish equivalent of bankruptcy. Whether you become sequestrated depends upon your individual circumstances and it is essential that you seek independent advice when considering which personal insolvency solution might be most appropriate for you. All personal bankruptcy options have repercussions for several years on your ability to access credit and potentially your employment prospects.

So what, exactly, is sequestration? In Scotland, you can voluntarily make yourself bankrupt (be sequestrated) without the need to go to court or, alternatively, a creditor can make you bankrupt through the courts.

You can be sequestrated in one of two ways: Through the courts as a result of a creditor, who is owed £3,000 or more, raising bankruptcy proceedings against you. Alternatively, you can pay a fee of £100 and make your own application to the Accountant in Bankruptcy, assuming you owe £1,500 or more, which avoids a court action.

To make yourself bankrupt you must have established apparent insolvency, meet the Lila (Low Income, Low Assets) criteria, or have a valid Certificate of Sequestration (for both see below). Apparent insolvency means a creditor has initiated debt recovery action and has served a charge for payment or a statutory demand which has expired without payment being made.

Once sequestration has been awarded, a trustee will be appointed to look after your insolvent estate. You will be asked to make a full disclosure of your assets and liabilities and your income and expenditure. Any value in your assets will have to be realised for your creditors and if you have any disposable income after allowing for your basic household expenses, you will be asked to pay a contribution from your income. Certain assets are exempt from your bankruptcy and there is guidance on how a trustee should deal with the realisation of assets.

Provided you co-operate fully with your trustee, you will be automatically discharged from your sequestration and your debts (excluding exempt debts) after one year. Your trustee can, however, if necessary, remain in office for longer than this to deal with your assets. You may, if assessed, also need to pay a contribution from your surplus income for up to three years.

Q: I am having problems with debts and have seen TV adverts for something called a protected trust deed. Can you please tell me what it means and whether it would be good for me? PR, Edinburgh

A: A protected trust deed (PTD) is a formal arrangement between you and your creditors to enable you to repay as much of your debt as your assets and income will allow, usually within a three-year period (although this can be extended). The agreement will take the form of a proposal that the trustee (a licensed insolvency practitioner) will draft based upon information regarding your assets, disposable income and level of debt.

You do not have to own any assets to consider a trust deed but you must be able to make a reasonable contribution towards your debts from your disposable income which, after trustee’s costs, will allow a dividend of at least 10p in the pound to be paid to your creditors.

Your creditors decide whether they wish to agree to the proposal and they are given five weeks in which to consider their position. Your trust deed will become protected unless either a majority in number or more than 1/3 in value write to your trustee to reject the proposal. Otherwise, all creditors are bound by the terms of trust deed and are prevented from taking any legal action to recover their debts.

If you comply with the terms of the PTD within the agreed period your creditors will discharge you from the remainder of your debts at the end of the PTD period.

• John Hall is the Scottish council member for insolvency trade body R3.