On 30 September 2022, the limit for pursuing sequestration was lowered from a minimum balance outstanding to the creditor(s) pursuing sequestration of £10,000 to £5,000.
As a result of the Covid-19 pandemic, the limit was originally increased to £10,000 to support those suffering financial hardship. A reduction in the limit for sequestration means that creditors can now use sequestration as a form of diligence for recovering debt of £5,000 or above.
What is Sequestration?
Sequestration is the Scottish legal term for personal bankruptcy.
An individual can apply to the Accountant in Bankruptcy to sequestrate themselves if their accumulative debt has reached the sequestration limit, which is currently set at £5,000. Alternatively, a qualified creditor who holds a payment Decree for £5,000 can apply to the Sheriff Court to sequestrate a debtor. Two or more creditors can join together to raise sequestration proceedings, if the conjoined debt reaches the £5,000 limit.
Read more: Eviction after Bankruptcy or Signing a Trust Deed
Following an award of sequestration being granted by the Court or the Accountant in Bankruptcy, a Trustee is appointed
Creditors can submit a claim form to the Trustee detailing the level of debt owed. The Trustee will consider any claims made against the debtor’s estate. It is the duty of the Trustee to sell any assets or property that the debtor owns in order to make payment to creditors in the form of dividends.
Is Sequestration a Useful Method of Diligence?
There is sometimes a lengthy wait while the Trustee ingathers all information relating to the estate of the individual. Sequestration can prove a successful method for recovering debt. While it is commonly used as a last resort in circumstances where the debt is relatively low, it often leads to a positive outcome in that a dividend is paid to creditors by the Trustee.
Creditors may wish to consider other methods of diligence, for example bank or earnings arrestment, as well as seeking an attachment order.
Are There Any Other Changes Being Introduced by the New Legislation?
The 2022 Act has also introduced changes to the Protected Minimum Balance (PMB). The PMB is the balance in a person’s bank account that cannot be arrested by a creditor to pay off a debt. From 1 November 2022, the Protected Minimum Balance for Bank Arrestment will increase sharply from £566.51 to £1,000.
Furthermore, at the start of the pandemic the period of moratorium on diligence was temporarily increased from six weeks to six months. The six-week moratorium was previously introduced by the Bankruptcy (Scotland) Act 2016 to allow individuals time to seek debt advice and assistance, prior to the enforcement of Court Orders for recovery of debt. The 2022 Act has now amended the 2016 Act to make the six-month period of moratorium permanent.
There are a variety of options available for recovering debt. For legal advice specific to your circumstances, to assist with identifying the most suitable method to recover money from a debtor, please get in touch.
