Sequestration or the Debt Arrangement Scheme in Scotland

If you live in Scotland and cannot pay your debts, the two formal options most often weighed against each other are sequestration and the Debt Arrangement Scheme. They do opposite things. Sequestration is Scottish bankruptcy: your estate passes to a trustee and most debts are written off, but you must owe more than £1,500 and pay a £200 fee¹. The Debt Arrangement Scheme (DAS) is a statutory repayment plan run by the Accountant in Bankruptcy: you repay your debts in full over an extended period, but interest, fees and charges are frozen from the date you apply².

The choice turns on whether you can realistically repay what you owe. DAS suits someone with a steady income who can cover the debt in full given enough time and protection from creditors. Sequestration suits someone whose debts cannot be repaid from their income or assets within any reasonable period. Both are Scottish solutions: they work differently to the bankruptcy available in the rest of the UK, and neither is available in England, Wales or Northern Ireland¹.

This page sets out what each one offers, what it costs, who qualifies, how to start, what protection it gives you and where that protection stops. It does not recommend one over the other. That decision depends on your income, your assets, your home and your family, and it is one to take with a free money adviser.

What each option actually is

Sequestration is the Scottish form of bankruptcy. A debtor application is made to the Accountant in Bankruptcy, and the debtor's estate vests in a trustee who realises what can be realised and distributes it among creditors. The Bankruptcy (Scotland) Act 2016 governs it, and the Scottish Courts and Tribunals Service handles the court side, where the main applications are petitions for sequestration from creditors or trustees⁵. In Scotland there are two routes of this kind, sequestration and MAP bankruptcy, which are similar solutions but carry different benefits, risks and fees¹.

DAS is different in kind. It is a Scottish Government scheme that gives you time to pay off your debts and protection from most creditor action⁴. Under the Debt Arrangement Scheme Act 2002, it is a scheme under which people may arrange for their debts to be paid under debt payment programmes⁷. A debt payment programme combines all your debts into one monthly payment, paid through an approved payment distributor⁸. The Accountant in Bankruptcy runs it, and it is described officially as a statutory debt management tool enabling debtors to obtain protected, interest-free time to pay, on condition that the debt is settled in full⁹.

The Scottish Government has noted that the current Scottish Debt Arrangement Scheme already provides debtors with a short breathing space and a statutory repayment plan¹⁰. That is the essential contrast: DAS is a repayment solution with protection attached, while sequestration is an insolvency that ends most debts.

Fees, charges and eligibility

The costs sit very differently. For sequestration there is a £200 fee, and you must owe more than £1,500 to qualify¹. For DAS, the debt payment programme is normally free to the debtor². Where a fee is charged under the scheme, the legislation is explicit that it may not be charged to the debtor and is to be charged to all creditors taking part in the debt payment programme¹¹. The Scottish Ministers have the power to determine and charge fees for considering applications and for providing information from the register of debt payment programmes, but the cost does not fall on the person in debt⁷.

The bigger financial difference is interest. DAS freezes interest, fees and charges on your debt from the date you apply for your debt payment programme, and if you fully complete the programme and pay off your debts, the frozen interest, fees and charges are written off³. In sequestration, by contrast, the debts that are written off at the end are the debts themselves, not a running balance you have been servicing.

Eligibility rules also pull in opposite directions. To apply for sequestration as a debtor you must first obtain advice from a money adviser on your financial circumstances, the effect of the proposed sequestration, the preparation of the application and any other prescribed matters, and the adviser must grant a certificate confirming that you are unable to pay your debts as they become due⁵. For DAS, a person may not in general apply if their debts are being managed in other ways, including sequestration or bankruptcy¹⁵. Applying for sequestration automatically revokes a debt payment programme¹⁵.

A balance transfer moves the debt, not the interest rate

That heading belongs to a different subject, and it is worth being clear that neither sequestration nor DAS is a way of moving debt around. Both are formal Scottish solutions with legal consequences. If what you are weighing is a way to make existing borrowing cheaper without a formal solution, that is a different question, and the options are set out in debt solutions across the UK and in informal payment arrangements with creditors.

What matters here is that DAS is a repayment scheme, not a write-off. You pay your debts in full, and the benefit you get is time, frozen interest and legal protection while you do it. Sequestration is the write-off route, and it comes with the consequences of insolvency.

Protection from creditors: what each one stops

DAS gives strong protection while it is running. Diligence, or enforcement action to recover your debt, is stopped once your details are placed on the DAS Register, and creditors cannot start a bankruptcy petition⁴. A debt payment programme cancels most forms of diligence, such as arrestment of your bank account or an earnings arrestment¹⁷. If you keep to the agreed payments, your creditors cannot go to court or take any enforcement action against you such as diligence, and your creditors cannot make you bankrupt¹⁹.

The legislation backs this up. While a programme is approved, a creditor giving unpermitted credit to the debtor is not competent to serve a charge for payment, commence diligence, or found on the debt in a sequestration petition²⁰. More broadly, a creditor is not entitled to found on any debt owed by such a debtor in presenting, or concurring in the presentation of, a petition for the sequestration of the debtor's estate⁷.

Sequestration protects you in a different way: once sequestration is awarded, individual enforcement against you largely stops because your estate is now under a trustee. Arrestments, money attachments, interim attachments or attachments of the debtor's estate within the 60 days before the date of sequestration, or on or after it, are ineffectual, though earnings arrestment and Child Support Act 1991 orders are excluded from that rule²². Separately, where a bank account is arrested, the arrestment attaches only the balance above the protected sum, or no funds at all if the balance does not exceed it²³.

Where the protection stops

Both solutions have edges. Under DAS, the protection depends on you keeping to the agreed payments; the bar on creditors going to court or taking enforcement action applies if you keep to the agreed payments¹⁹. If further credit is given to a person in a programme, then diligence and sequestration may not be available to enforce payment of that new debt, which cuts both ways: it protects you from enforcement on it, but it also means the new borrowing sits outside the scheme's discipline¹⁵.

Under sequestration, the protection is not absolute either. Certain enforcement, such as earnings arrestment, is not caught by the 60-day rule²². And sequestration is not easily undone: the Bankruptcy (Scotland) Act 2016 allows recall only on limited grounds, including that the debtor has paid the debtor's debts in full, that a majority in value of the creditors reside in a country other than Scotland and it is more appropriate for the estate to be administered there, or that another award of sequestration or an analogous remedy has been granted²².

There is also a rule that catches people who try to run both at once. A person may not in general apply for a debt payment programme if their debts are being managed in other ways, including sequestration or bankruptcy, and applying for sequestration automatically revokes a programme¹⁵. In other words, you cannot hold DAS protection and pursue sequestration at the same time.

How to start each one

For sequestration as a debtor, the process begins with advice, not with an application. An application for the sequestration of a living debtor's estate may not be made unless the debtor has obtained from a money adviser advice on the debtor's financial circumstances, the effect of the proposed sequestration, the preparation of the application, and such other matters as may be prescribed⁵. The adviser then grants a certificate for sequestration, which is a certificate granted by a money adviser certifying that the debtor is unable to pay debts as they become due¹⁴. The date of sequestration, where a debtor application is made, is the date on which sequestration is awarded²⁵.

For DAS, the route runs through a money adviser and the Accountant in Bankruptcy. The Accountant in Bankruptcy administers the scheme, and further information on DAS, including eligibility and how to apply, is published on mygov.scot¹⁶. A debt payment programme puts all your debts into one monthly payment paid via an approved payment distributor⁸.

Service, complaints and who regulates what

Sequestration has a court element. The Scottish Courts and Tribunals Service deals with bankruptcy applications, and the main applications are petitions for sequestration from creditors or trustees⁶. The Sheriff Court Bankruptcy Rules 2008 apply to sequestrations where the petition was presented or the debtor application was made on and after 1 April 2008 and before 30 November 2016, so older cases run under older rules⁶.

DAS is administrative rather than court-based. The functions were transferred to the Accountant in Bankruptcy in 2004¹². The scheme is defined in the Debt Arrangement Scheme Act 2002, and a debt arrangement scheme refers to a debt payment programme under the Scottish debt arrangement scheme⁷.

On the creditor side, there are conduct rules that matter to you. Firms regulated by the Financial Conduct Authority should not take steps to enforce a debt if they are aware that the customer is subject to a bankruptcy order (or sequestration in Scotland), a debt relief order, an individual voluntary arrangement, or in Scotland a protected trust deed or Debt Arrangement Scheme²³. If a creditor ignores that, a complaint can go to the firm first and then to the Financial Ombudsman Service, which handles complaints involving cost of living pressures among others²⁷.

What happens to your money and your accounts

Under DAS, your bank account is protected from arrestment while the programme is approved, because a debt payment programme cancels most forms of diligence including arrestment of your bank account and earnings arrestment¹⁷. Under sequestration, the position is different: your estate vests in the trustee, and the 60-day rule makes arrestments and attachments around the date of sequestration ineffectual, with earnings arrestment excluded²².

Where a bank account is arrested outside those protections, the law sets a floor. The arrestment attaches only the balance above the protected sum, or no funds at all if the balance does not exceed it, and this applies to an individual debtor's account with a bank or other financial institution, not to a company, LLP, partnership, unincorporated association or trading account²³.

If you are using a debt advice charity to hold money for payments, it is worth knowing how that money is protected. Money held by StepChange is covered by the Financial Services Compensation Scheme, so you can get compensation if StepChange is unable to meet its financial obligations²⁸. The FSCS also covers certain debt management activity, and its guidance sets out what is and is not covered²⁹.

Free help and what it costs

Advice is free, and in the case of sequestration it is compulsory before you can apply⁵. StepChange Debt Charity offers free, impartial debt advice, available online 24 hours a day with the option to switch to the phone, and it will not share your details with anyone²⁶. It has been helping people for over 30 years and has helped more than seven million people³⁰. Getting advice will not affect your credit file or impact your credit score³².

If face-to-face help suits you better, StepChange can refer you to a fellow debt advice charity³³. It also offers a benefits checker and an online advice tool, and you will get a reference number to show your creditors that you are seeking help³⁴.

It is worth knowing what a free service looks like against a fee-charging one. StepChange's debt management plans have no set-up charges or monthly fees, and if your plan is free, all the money you pay into it goes towards your debts³⁶. On IVAs, there is no charge for advice and support before you set up an IVA, and you do not pay fees if you do not go ahead³⁸. Those are the terms of one charity, but they illustrate the principle: check what you are being charged for, and by whom, before you sign anything.

Other Scottish options worth knowing about

Sequestration and DAS are not the only Scottish routes. A protected trust deed is a formal alternative, and official guidance notes that if you can pay off your debts in full over a reasonable time, other options might be better, such as the Debt Arrangement Scheme, refinancing if you have a lot of equity in your property, or bankruptcy if you cannot keep up with payments for four years or more³⁹. The comparison between a protected trust deed and sequestration is set out in protected trust deeds in Scotland and sequestration and the Minimal Asset Process.

Time to pay directions and orders are another Scottish mechanism, and they are covered in time orders and time to pay orders. If your problem is a specific type of debt rather than your whole position, the pages on council tax arrears, rent arrears and energy and water bill arrears deal with those separately.

For a full picture of how the Scottish rules differ from the rest of the UK, see money in Scotland, Wales and Northern Ireland.