The one thing that puts many people off the idea of sequestration is losing their assets. If you have few or no assets and qualify for a LILA Sequestration it is not something you will have to consider, but for those who own their own home and a variety of different assets that have a value if sold, giving up these can be a massive wrench and in some cases quite upsetting.
Building a portfolio of assets - a financial nest-egg - makes financial sense and to see all these go is very difficult, but if you think about it this is actually what they are for. While some nest eggs are laid down for retirement, there is an unspoken understanding that if you experience a “rainy financial day” your nest egg of assets will protect you. If you are considering something as serious as sequestration then that rainy day has come.
In an ideal world, you would be able to sell some of your assets yourself to pay your creditors, but in an uncertain financial world it may be difficult for you to do so quickly, which can effectively tie your hands when trying to deal with creditors if they are determined to take action against you quickly. There is also a danger that if you sell an asset to pay off a particularly pressing creditor, that may be unfair to others who remain unpaid and you could be criticised for preferring them.
If you opt for Sequestration, after it is granted your Trustee will take over your estate. They will liaise with creditors and other third parties involved to value and sell your assets and release the cash to pay them what they are owed. How much of your assets are sold depends on how large your debts are – an IP may be able to clear all of your debts without having to sell all of your assets. However, in the event this is not possible, there are some issues with the treatment of assets during sequestration you need to take into account.
Your Trusteewill want to see how you have handled your assets over the last few years, specifically if you have been moving them around. Assets sold as far back as five years ago could be under consideration. They may look to see if you have sold them for much less than they were worth (i.e. something worth thousands sold for hundreds), which may indicate you have sold it at below market value to a friend with the intention of hiding it and then buying it back after the sequestration has been granted. They also look to see if you have used the proceeds incorrectly, possibly paying a friend or relative ahead of other creditors. Your trustee can apply to court to reverse any transaction they think has been done for this purpose.
All of your assets apart from those specifically excluded in the legislation can be claimed for your estate. The excluded items are: items required for day to day living; tools of the trade up to £1,000; and a car reasonably required by you, e.g to travel to work, to the value of no more than £3,000. Everything else must be disclosed to your trustee and they will decide whether they should be sold to make money available to your creditors. Generally assets are classed according to whether they are movable or immovable. Movable assets includes savings, investments, jewellery, cars owned outright, insurance and endowment policies and any debts owed to you. Immovable assets include properties, land and businesses, whether you own them outright or have a part-share in them, and whether you draw an income from them.
First of all, after you have been sequestered you are not allowed to undertake any transaction regarding any asset you own, including your home. Second, Trustees understand that your home is very precious to you and will attempt to give as many options as possible for you to consider before considering selling it if that is possible. They must take into account not just the equity level, but also who else owns the house with you (a spouse, friend or lender if there is a secured loan against it) and whether there are any children or dependents living there with you. For example, if you jointly own your property and there is enough equity to make it worthwhile to release it to creditors, you may be able to ask the other owner or owners to buy you out of your share as a lump sum, through instalments or as a remortgage.
If you own a second property as a holiday home or are renting it out to tenants, your Trustee is likely to suggest that this is sold if it has an adequate amount of equity that can be released.
If any property you own is in negative equity, your trustee retains the right to periodically assess the value of the property up to three years after your have been sequestered for any increase in equity that could be released. If your trustee does not realise the equity in your property, or otherwise deal with your property in one of a number of ways set down in the legislation relating to sequestrations, within 3 years of you being sequestered, then the property will revert to you.
Sequestration does not take all of your belongings as many people believe. Items for day-to-day living are excluded from your estate. For example, all the fixtures and fittings of your home, reasonable furniture, furnishings and floor coverings will not be touched, as well as everything you use for cooking and cleaning. Children’s belongings are exempt as are educational items and anything you need to do business with if you are self-employed up to a limit of £1000 for an individual item and £3,000 for a vehicle.
It’s not easy seeing the things you’ve worked hard to accumulate having to be sold, but an important function of an asset is that it can provide protection for you when things get bad. For more information on how your assets will be treated during and after sequestration call one of our specialist advisers now on 0141 345 2904.