Bankruptcy vs Sequestration – What’s the Difference?
At LoanBird we understand that in a world full of financial terms, navigating your finances and finding the best solution for yourself can be challenging! That’s why we have created a service to find the most appropriate loan options for you, whether you’ve got bad credit, need to use a guarantor or want some quick cash on a short term basis.
However, for some of us, unfortunately, the only available option is to consider declaring bankruptcy – when there’s no other way around debt. It’s the last possible solution, of course, as there are plenty of options out there!
Furthermore, this drastic solution can become even more confusing when we’re also told to consider things such as sequestration, too!
But what is sequestration, how does it relate to bankruptcy, and are there any differences between the two?
As part of our guide below, we will take you through both financial procedures to help you better understand the options available to you and which one would better suit your situation.
Before you consider sequestration or bankruptcy, remember that debt charities are available to support you. Contact StepChange, for example, for help and guidance in handling debt due. You don’t have to go it alone.
What Is Sequestration?
A sequestration is a form of debt solution that is only available to people living in Scotland. The term ‘sequestration’ can pretty much be described as bankruptcy – it is only applicable to those who cannot afford to pay off their debts, and who have exhausted all other relief options available to them.
Sequestration lets you write off debt completely – which may be necessary if you no longer have the means to pay off any money due to creditors.
Sequestration is often the last resort and should only be chosen if no other form of debt solution is applicable – a financial advisor will tell you the same, as will advisors working through Citizens Advice.
- In order to officially qualify for sequestration, you must:
- Be resident in Scotland
- Have no bankruptcies in the past five years
- Have no other debt payment possibilities available
- Have debts that total more than £3,000
- Pay a sequestration fee
The application fee for sequestration costs £200 at present, and is owed to the Accountants in Bankruptcy (AIB). Only certain debts can be considered for sequestration, too – such as credit card payments, loans, overdrafts, council tax arrears, and household energy debt.
However, debts such as child payments, student loans, and debts secured on assets and possessions do not qualify for sequestration.
Unlike other forms of debt solutions in Scotland, a person’s personal assets (such as the house, vehicles, and so on) can be sold in order to deal with the debts.
What Is Bankruptcy?
The term ‘bankruptcy’ is applied in England, Northern Ireland and Wales. It can only ever be applied to individuals and not to companies, businesses, etc.
For an individual to be able to petition for bankruptcy, their debts need to be over £5,000, total – a little higher than the threshold in Scotland.
Much like sequestration, in order for a person to be declared bankrupt, applicants must provide a bankruptcy petition. The petition must then be fully approved by an applicable court.
While any individual may present their own petition, creditors can also petition for bankruptcy to be made against an individual indebted to them. Therefore, you may not have a choice in the matter.
Right now, it costs £680 to petition for bankruptcy. Once your petition has been approved, the affairs of the person in question are then handed over and dealt with by either a civil servant or a licensed insolvency practitioner.
Again, as with sequestration, a person’s assets can be sold to pay off their debts.
Bankruptcy is also seen as a last resort. You will be advised to use any other means of paying off their debt before petitioning for bankruptcy.
What’s the Difference Between Bankruptcy and Sequestration?
As you can see, bankruptcy and sequestration are very similar in many ways. Both are last resorts and are only applicable to certain individuals. They also both involve the sale of assets in order to settle an individual’s debts.
However, in the UK, bankruptcy is different depending on the nation. Each nation has its own local rules regarding such financial issues.
The only thing that all of the nations of the UK share regarding bankruptcy is the UK insolvency law – however, this refers to the debt of companies. As bankruptcy and sequestration only refer to individuals, each nation has its own rules and administration.
In fact, the administration and liquidation of the debts can change depending on the company in question, too.
Generally speaking, sequestration simply refers to the bankruptcy of a Scottish individual living in Scotland.
Bankruptcy is the term used for individuals living either in England, Wales, or Northern Ireland.
That being said, the term ‘bankruptcy’ is used more frequently and generally, especially in the media. It has become a term used for people with large debts and even companies. Therefore, it’s understandable why so many people get the two phrases confused!
Conclusion – Bankruptcy vs Sequestration
If sequestration or bankruptcy is your only solution to debt that you owe, you must follow the right procedure for your particular case. While the two terms may appear different, they do essentially mean the same thing. They are both for people who cannot pay off their significant debts. The only real difference remains where the person is situated!
Either way, if you are considering declaring bankruptcy or sequestration, it is best to talk to a professional first. You can inquire about your particular situation with a civil servant or a financial advisor. They may help you find a better solution for your situation than either of these options.
Alternatively, it’s wise to speak with a debt charity, or with a representative at the Citizens Advice Bureau. Ultimately, creditors will want to help you find a solution to debt – it’s good to keep them informed, and to be honest!
However, should sequestration or bankruptcy be the only option for you, it is always best to work with a professional to ensure you provide the right forms in the right areas. Never try to navigate these processes alone – professional advice is always on hand to guide you!