Which company is putting your case to creditors?

Its not very common at all for someone putting forward a trust deed to be forced into bankruptcy because creditors prefer to get something back and often sequestration results in a very low return.

Paul

Hi Willamena

Are you looking at the piece of paper which tells you what can happen after you sign a trust deed?

That paper tells you all of the things which the law says your trustee has to tell you. (Preferably in person, IMO).

Signing a trust deed can lead to bankruptcy. I don't get the feeling that it's very common for that to happen - but the experts can probably give you a better idea on that.

As for how it happens:

- It's possible for a creditor to petition for your sequestration (bankruptcy) once you've signed a trust deed. But they'd have to prove to a Sheriff that bankruptcy was a better option for your creditors.

- If your trust deed doesn't become protected, then you can apply for your own bankruptcy.

- If your trust deed does become protected, but you don't stick to the conditions, and/or your trustee believes that it would be better for your creditors if you were bankrupt, then the trustee can petition for your sequestration.

There may be other 'reasons', and I'm sure that other posters will be able to fill those in.

But, as I said, I don't get the feeling that it's particularly common for this to happen.

Candlewick,

Just out of interest, when is it better for creditors to seek sequestration as opposed to trust deed?

In a trust deed there is a reasonable expectation of some return as the duration will be extended as a first option if circumstances change?

In the same change of circumstances during sequestration the main requirement would be covering the fees associated with the work of the trustee company?

I think you're right in saying it is a legal requirement to be advised but in practical reality, very unlikely?

My understanding is for sequestration to be a last resort as itleads to the least payment of debts outstanding and the most restrictions for the sequestrated following their bankruptcy as well as arguably the worst stigma.

Interesting questions RBSB

It is a legal requirement that anyone who signs a trust deed has to be advised that it may lead to sequestration. Signing the trust deed means that you are now 'apparently insolvent'.

If you don't comply with the TD, then your trustee can make you bankrupt. According to AiB's annual report, there appear to have been 165 cases where this happened last year. That's 9% of cases where someone else made a person bankrupt (as opposed to a debtor application).

If your TD fails to become protected, that can lead to you applying for your own bankruptcy. AiB figures don't specifically identify cases where that has happened - they seem to be lumped in with figures on 'apparent insolvency' as a reason for bankruptcy. The number of bankruptcies on the grounds of apparent insolvency have gone down, while the number with a Certificate for Sequestration have increased by 125%.

A creditor might petition for sequestration, within five weeks of the date the TD is advertised in the Edinburgh Gazette, if they can demonstrate to the sheriff that it is in the best interests of the creditors. For example, if the trustee in the TD was only seeking a fraction of the equity in a property, a creditor might argue that sequestration would be in the best interests of the creditors, as the full equity would be realised by the trustee.

The first requirement in a trust deed, as well as in bankruptcy, is to pay the trustee's fees and outlays. Everything else comes after that, with 'ordinary' creditors pretty far down the list.

Anyway, that's enough for one post!

weewillamena, sorry if I took the discussion off topic from your post. I just couldn't visualise how there would be an improved return for creditors.

Thanks Candlewick, Those figures are interesting.
I can see the equity being an issue. I hadn't realised any different approach would be taken in sequestration vs pTD though in regards to property.

Surely estimated sale costs and holding costs would be the same in either scenario?

My impression from prior posts was that any trustee would need to realise equity whilst most would adopt a common sense approach to realistic outcomes and costs of forcing a sale.

Is it the forced sale which creditors may see as worthwhile in a sequestration vs a pTD?

Hi RBSB

It was an example of a reason which might be put forward by a creditor. I'm not sure how helpful if would be to speculate further about possible reasons for this, and potential objections to that.

If a creditor did petition for sequestration in that five week period, they would have to persuade the sheriff that their argument stood up.

You also have to bear in mind that there is no guaranteed dividend in a TD either. Many creditors will only accept a TD proposal if it estimates that there will be a minimum dividend of 10p in the pound for ordinary creditors.

36% of the PTDs closed last year paid no dividend to ordinary creditors. The average dividend was 17.2p in the pound.

Even fewer bankruptcies paid out a dividend to ordinary creditors. However, the average dividend was far higher. (I'm sorry that I don't have figures to illustrate these point, but I'm afraid that the the report presents the figures in a number of different ways, and my notes are unclear. And I'm not going back in there!)

So, it would definitely be a gamble for a creditor to petition for sequestration rather than stick to the TD. However, it would be a more informed gamble than the average petition, as the TD documents would have given the creditor information on the person's income and expenditure, potential contribution, and realisable value of assets

Some great info there from Candlewick, who is as always quite right - a creditor has the right to petition for sequestration up until the point of protection, but it is a very rare occurrence for this to happen.

However, if they did go down this route, I'm not sure that the creditor would have to put up much of an argument to be honest. Sheriffs will usually grant sequestration as long as the creditor can show that the debt is owed and that the documentation has all been served in accordance with legal requirements. I don't think that the creditor would have to justify why sequestration would be a better outcome.