"THE WORST CASE SCENARIO"

When someone is in debt the thought of bankruptcy may loom as the worst horror or a possible desperate end to their worries so it may help to learn a little more about it. You may hear the word ‘sequestration’ used as this is the Scottish legal term for bankruptcy. Assets are transferred to a trustee who takes over the client’s financial affairs and deals with creditors so the debtor does not have to deal with them. Normally after a year the bankruptcy is discharged and the client can start afresh, free from some, but not all debt, although if he is working he may have to make payments to creditors for a further two years. The sequestration is not advertised in the press and employers or friends do not need to know. So, what’s the problem?

The trustee sells the clients assets to raise money to pay the creditors, so the client may lose their home. If the house is jointly owned and the joint owner cannot buy the debtor’s share then the house may still be sold although the joint owner will receive money for their share. It’s no good giving everything away before declaring bankruptcy as gifts made and possessions sold in the five years before sequestra- tion are scrutinised.

The client’s contract of employment may state that the employer should be told about sequestration and if the client is in the armed forces the commanding officer must be told. There is a list of jobs that a sequestrated person cannot do such as being an MP, a councillor, an accountant or solicitor, an estate agent or running a charity or acting as attorney over someone else’s financial affairs. Debts that still remain to be paid are student loans, court fines and debts obtained through fraud such as overpayment of benefits.

The existing bank account may well be frozen and it could be difficult to open a new one. Although the sequestration may be discharged the details will remain on the client’s credit record for six years. So, how does it happen?

The client’s creditors may make him bankrupt. If he owes more than £3000 he can be sequestrated by statutory demand from his creditor or creditors. The court costs will be added to the debt and the court will appoint a trustee. This is more likely to happen if the creditors suspect a client has got assets such as a house that can be sold. The client can apply for his own sequestration if he has debts of more than £1500 and meets other conditions including being apparently insolvent. This is proved by creditors taking him to court and sheriff’s officers making a charge for payment or if a statutory demand has been filed. He may also apply if he is on a low income or receives certain benefits.

He could complete a Debtor’s Application Pack and submit it to the Accountant in Bankruptcy with a fee of £100 or consult an insolvency practitioner, who will charge a fee. If the client has enough assets this could be paid after the sequestration.

This is a brief glance at a huge subject. I am not suggesting men are more likely to get into debt by referring to the debtor as ‘he’. All information applies to women as well. Less drastic actions such as a Debt Arrangement Scheme or a Trust Deed may be more suitable. More about these another time. If you want more information call in at the Citizen’s Advice Bureau at 7 Atholl Crescent. Drop in is 10am-12 noon, Monday to Friday or phone 01738 450581 for an appointment in the afternoon. Everything is confidential, even the fact that you visited the bureau.

Website www.adviceguide.org.uk gives accurate information on debt but little on sequestration.

A.H.