What is a Certificate for Sequestration (Scotland)?
The actual Certificate of Sequestration provides a debtor with documentary proof (the certificate itself) that they are insolvent. “Insolvency” is a blanket term covering situations where a debtor can no longer afford to repay their debts when they fall due, and/or they have insufficient assets to enable the repayment of their debts.
This document can then be used as part of an application to the Accountant in Bankruptcy to become bankrupt. The certificate may also be issued by an Insolvency Practitioner (the same professionals that handle and set-up protected trust deeds). It’s then used as the starting point for the debtor to appoint that Insolvency Practitioner to handle their sequestration
Upon issue of the certificate, the debtor has 30 days to make their application for sequestration to the AIB using that certificate as evidence of their insolvency.
The certificate can only be issued on the instruction of the debtor. It cannot be granted upon the application of a creditor.
In what Circumstances might a Certificate for Sequestration be Appropriate?
If you cannot afford to pay enough each month to make a trust deed viable, a Certificate of Sequestration may be an appropriate route to bankruptcy in Scotland.
This might be considered (for example) where, due to a restricted ability to contribute to a trust deed each month, you have been informed that a trust deed will last longer than the usual four year period.
Anyone who does not qualify for the MAP (Minimal Assets Process) route to sequestration, perhaps because their income is too high or they own their home, might consider this route appropriate.
Anyone who has not been subject to creditor legal action might find that this is the only route to bankruptcy that is available to them.
How Much does it Cost?
No adviser is allowed to charge you for the issue of this certificate. You should not agree to pay anything for this service.
Who is Permitted to Provide you with a Certificate?
An authorised person must issue the certificate. Such authorised persons are defined as being Insolvency Practitioners (these are the people and firms that set up Scottish trust deeds) and Money Advisers (who are likely to be employed in your area by the CAB and/or your Local Authority).
What Will the Adviser Do?
The adviser must satisfy themselves that you are unable to repay your debts as and when they become due. This will be ascertained via a fact-finding exercise. The onus is upon you to prove that you cannot repay the debts. As part of this process you may be requested to bring certain types of documentation (such as identification, bank statements and creditor statements) to the appointment.
The adviser will provide a Debt Advice and Information Package and advise you regarding the consequences of bankruptcy. They will also provide information regarding the other debt solution options available to you. An adviser is not allowed to charge you for these services.
Criteria for Sequestration
The debtor must live in Scotland (or have lived in Scotland within the last year), must not have been bankrupt within the previous five years, must have at least £3,000 of debts, and must pay a fee of £200 upon application for bankruptcy (using their Certificate for Sequestration).
What Happens after the Certificate is Issued?
The debtor has 30 days from the date the certificate was signed during which they can apply for their sequestration to the Accountant in Bankruptcy. Evidence including payslips, bank statements, tenancy agreements and hire purchase agreements has to be presented to the AIB as part of the sequestration application. In some circumstances the debtor may instead appoint an Insolvency Practitioner to handle their sequestration (after the certificate has been issued).
Using a Money Adviser to Issue a Certificate for Sequestration
You may decide to approach a Money Adviser locally to request their assistance in this issue.
The Money Advice Scotland website contains a “Find an Adviser” function which will enable you to locate appropriately approved persons in your area who can assist you.
Using an Insolvency Practitioner to Issue a Certificate for Sequestration
As mentioned previously, it’s not permissible for any adviser to charge you a fee for the issue of a Certificate of Sequestration. Insolvency Practitioners (who also handle trust deeds) work in a commercial environment and therefore typically charge fees for their services.
As they cannot charge a fee for the issue of a certificate, some Insolvency Practitioners and trust deed firms are not willing to perform this work.
Other IPs and trust deed firms are prepared to perform this work (without charge) where they believe that the debtor will be able to make a contribution towards the costs of their subsequent bankruptcy from their surplus income and/or any substantial assets that they own.
If they are appointed by the debtor to handle the bankruptcy (rather than an application for bankruptcy being made directly to the Accountant in Bankruptcy), the Insolvency Practitioner will be able to draw fees for their work from the contributions made into the bankruptcy from the monthly surplus income and/or any significant assets owned by the debtor.
Why Approach an Insolvency Practitioner to Assist with your Bankruptcy?
In some situations a debtor who is considering becoming bankrupt may prefer to approach an Insolvency Practitioner (at a trust deed firm) to assist with issuing the certificate and then to handle their bankruptcy. The alternative is to apply directly to the AIB (with the help of your adviser) to act as Trustee in the bankruptcy following the certificate’s issue (which may have been issued by a Money Adviser).
One reason may be that the debtor wishes for the process to commence promptly. In some areas (but not all) the resources of Money Advisers may be under great demand. This can sometimes (but not always) result in significant waiting times for appointments to get a Certificate for Sequestration. Insolvency Practitioners operate on a commercial basis and may therefore have greater resources to dedicate to providing prompt access to advice and services.
Another reason is a situation in which the debtor is a homeowner, or owns other significant assets. By approaching an Insolvency Practitioner or trust deed firm directly they will have the opportunity to discuss exactly how their assets/home will be dealt with in bankruptcy prior to going ahead with the bankruptcy. If applying directly to the AIB to act as Trustee, it is likely that they will appoint an Insolvency Practitioner to act as their agent to handle your sequestration. You will find out exactly how your home/asset will be dealt with only after the bankruptcy has gone ahead.
Approaching an Insolvency Practitioner directly will also enable you to understand what, if any, payment will be required (the Debtor Contribution Order) into the bankruptcy each month if you choose to go ahead. If you apply to the AIB directly the firm later assigned your case will determine what payment (if any) you should be making each month.
Some people may also have reason to trust a particular Insolvency Practitioner or trust deed firm. They may have received a personal recommendation, a professional recommendation or have read good feedback about a particular firm. While all Trustees’ must handle a bankruptcy with the interests of creditors in mind, the manner in which an individual is dealt with on a personal level throughout the entire process can make a substantial difference to the debtor him or herself. A direct application to the AIB to act as Trustee will normally result in the outsourcing of your case to one of the firms included in the AIB’s panel; chosen at their discretion rather than yours. If there is no Insolvency Practitioner nominated on the application form, the AIB will, by default, be appointed as the debtor’s Trustee.
Disadvantages of Bankruptcy
Bankruptcy is generally considered to be the most serious method by which to resolve a debt problem. It will have a serious effect on your credit rating, about which you can read more here.
Any previous bankruptcy may also need to be declared on mortgage applications for many years after you have been discharged, even if it is no longer visible on your credit record.
Public records of bankruptcy are kept.
During the term of your bankruptcy, and potentially for three further years after you have been discharged, your personal expenditure may be limited. This would be to facilitate a payment from you towards the costs of the sequestration process and the repayment of part of your debts.
Significant assets that you own might have to be sold if a sale would help to realise funds that could help to cover the costs of your sequestration and to repay some of the money owed to your creditors.
How this Site can Help?
The trust deed firms recommended by this website are all able to issue Certificates for Sequestration and then handle a client’s bankruptcy.
In common with other Insolvency Practitioner firms, they operate on a commercial basis. They therefore limit their work in this area to cases in which their client is potentially able to contribute towards their debts in bankruptcy via a monthly payment (from their surplus income) and/or as a result of the realisation of an asset. You can read how their draw their fees here.
If you think that you may be able to contribute (from income or assets) after becoming bankrupt, and you wish to investigate your options with one of our recommended firms, please submit the form below.
A member of the Trust-Deed.co.uk advice team will then contact you. Each member of the team is a professionally qualified debt adviser.
Using an industry-recognised process, the adviser will work with you to confirm whether a Certificate for Sequestration might be appropriate for you. They will also confirm with you whether any other options may be preferable, whether you are likely to be requested to make a monthly payment if you become bankrupt, and what is likely to happen to any assets you own (including your home).
If you meet the criteria used by the sites’ recommended firms and wish to proceed, the adviser will be able to put you in touch with one of them directly in order that the process can begin.
In other instances (that do not fit the criteria applied by these Insolvency Practitioners) the adviser will be able to direct you to Money Advisers local to your area who can provide a certificate to you.
You are also welcome to ask questions in connection to Certificates for Sequestration and bankruptcy in general in our trust deed forum.