If you have been resident in Scotland for over 6 months then you are eligible for different debt solutions that the rest of the UK. It can be difficult to decide which solution would suit you best so speak with a debt adviser today who will help you work through the Scottish Debt Solutions and decide which suits your circumstances best.
A Scottish Trust Deed is a formal, legally binding arrangement between an individual and their Creditors which usually lasts for a period of 4 years. It is a legal agreement which can only be carried out through a licensed Insolvency Practitioner. It is only available to residents of Scotland and it is designed to help people struggling with significant unsecured debts (more than around £8,000). Debts remaining at the end of the normal four year period, are effectively written off by Creditors, subject to some exceptions.
A Scottish Trust Deed reduces unaffordable multiple payments to Creditors to a single affordable monthly payment. It offers protection from Creditors taking legal action against you, and protects your home and car from repossession.
How does a Scottish Trust Deed work?
Consult an Insolvency Practitioner (also referred to as a Trustee) who will sit down with you and discuss your personal financial circumstances and your financial needs. This enables them to help to draw up a realistic budget and to determine the level of affordable monthly payment you can make towards your debt.
This single monthly payment will replace all your other monthly repayments to existing Creditors. This forms the basis of the Trust Deed which will be submitted for approval to Creditors. It is an important step towards securing you protection from Creditor action, from other forms of legal action or from your wages being arrested.
Once a Trust Deed is signed, your IP will send proposals to all relevant Creditors, clearly spelling out how much you propose to pay, how assets will be dealt with and how much Creditors can expect to receive over the lifetime of the Trust Deed.
Creditors have five weeks to object or agree to the proposal. If they fail to respond it is assumed they agree with the proposal. It is only if Creditors accounting for more than a third of the value of your total debts object to the proposal, that the Trust Deed will fail to become protected. In the majority of cases we have handled, this does not occur. However, even if this were to happen, your Trustee would be able to provide further advice and to discuss alternative solutions with you.
If the proposal is accepted by your Creditors then the Trust Deed officially becomes a Protected Trust Deed. For people worried about losing their homes or other assets, this removes a huge amount of stress as creditors are then barred from taking legal action to recover their debts.
If you are a homeowner, the level of equity (difference between the value of your home and the amount you owe on it) is determined at the start of the Trust Deed. If you have a lot of equity in your home, it may have to be released to pay Creditors – but that does not mean you are forced to sell, there are ways to do this which can avoid a forced sale.
Once all payments have been made, normally over 48 months, and all terms have been complied with, you will be issued with a discharge letter. What this means is that you are no longer liable to repay any of the debts that were included in the Trust Deed.
- Payments are based on your budget and what you can reasonably afford to pay.
- The Trustee will deal with all Creditors, immediately removing any pressure from unwanted phone-calls and communication.
- All administration is dealt with by the Insolvency Practitioner.
- Once the Trust Deed has become “Protected” Creditors cannot take legal action to recover their debts and are bound by the terms of the Trust Deed.
- It allows you to regain some control of your finances
- All costs are met from the monthly contributions you make into a bank account held in trust for Creditors. Administration fees are agreed between the Insolvency Practitioner and Creditors, and are deducted from the monthly payment you make and, if appropriate, from the sale of any assets.
- After four years some of your debts may be written off, depending on the terms of the arrangement.
- If you are a homeowner and have equity in your property (or any other particularly high-value assets), this must be released to pay Creditors. There are ways to do this without the need to sell your property, for example by remortgaging. Alternatively it may be possible to extend contributions from income for a longer time.
- Creditors can vote against a Trust Deed becoming “Protected”. However it is only if the majority of Creditors object that the Trust Deed would fail to become “Protected”. If this was to happen there are other potential debt solutions we can advise you on.
- There are certain professional bodies which prevent members from signing a Trust Deed – we can help advise on whether this is likely to be an issue for you.
- Individuals may find it hard to get credit once a Trust Deed has completed. Creditors and credit rating agencies will assess risk level based on financial history and this will include the Trust Deed, although your credit rating will improve over time as you tackle your debt.
A Debt Arrangement Scheme, or DAS, is a formal debt solution established by the Scottish Government and available to residents of Scotland.
A key benefit of entering a DAS is that all interest and charges on your debt are frozen so the amount of money you owe is capped. Also, you do not have to worry about losing your home as a DAS protects both your house and your car.
Another major advantage of a DAS is that it prevents Creditors from taking legal action against you to recover money. In fact, you do not have to have any further direct dealings with Creditors at all.
This solution provides you with a breathing space to allow you to focus on steadily clearing debt rather than being harassed by Creditors or worrying about keeping a roof over your head.
It offers the opportunity of a fresh financial start as all debts contained in the agreement will be fully paid by the end of the process.
What is Included in a DAS?
It is generally unsecured debt such as:
- bank and building society loans and overdrafts
- credit cards
- personal loans
- store cards and charge cards
- home/online shopping catalogues
- Council Tax arrears or other tax debts
- utility bill arrears
Mortgage debt is unlikely to be included as it is classed as secured debt – i.e. your property is held as security against the loan. However a DAS agreement will take account of the monthly payments you are required to make to your mortgage lender when calculating an affordable payment each month to your DAS.
How does a DAS work ?
You need to consult a qualified Money Adviser who will make an application on your behalf. Individuals cannot make a direct application on their own.
Your Money Adviser will have a confidential discussion with you on your financial situation including how much you owe as well as your assets, expenditure, family situation and income. This helps them calculate how much disposable income you have to make debt payments after living expenses.
Your Money Adviser will expertly assess your options and will be able to inform you whether a DAS is the best option and also clearly explain any fees or charges and how these will be deducted.
Once you decide that a DAS is the best way forward for you, your Money Adviser will compile a detailed Debt Payment Programme (DPP), contact all your Creditors with the proposals and make a formal application to have these debts placed into a DAS.
If Creditors agree to the terms of the DPP within three weeks, it will be approved – if they fail to respond it will be presumed that they have consented. Even if one or more Creditors object, the DPP will then be considered by the DAS Administrator (a senior civil servant working for the Scottish Government) and if they deem the application ‘fair and reasonable’, they can legally force creditors to comply with it. Once it is approved, all interest, fees, charges and penalties on your debt are frozen.
You begin making a single affordable monthly payments to an Approved Payments Distributor who then distributes a portion of the money to each of your Creditors. Your Creditors, not you, pay for the Approved Payment Distribution service.
Once you have made your last scheduled payment under the terms of the DAS, all debts contained within it will have been repaid in full. The duration of the DAS can vary according to individual circumstances – it can be as long as 10 years. At the end of it, you will be free to make a fresh start.
- As soon as the intention to apply for the Debt Arrangement Scheme has been registered, you are protected from any legal action by Creditors.
- A Money Advisor deals with all Creditors, so you don’t have that stress.
- As soon as the programme is approved interest, fees and charges on the debt are frozen, preventing Creditors from imposing new charges which would increase your debt.
- Your home will not be affected by the DAS as long as you maintain mortgage or rent payments on it
- Monthly payments are based on what you can reasonably afford to pay.
- Sole traders may be able to include business debts in the DAS
- If your circumstances change it may be possible to apply to vary the monthly payment amount and/or apply a payment holiday.
- The scheme will last until the debts are cleared – there is no fixed time period.
- Secured debts such as mortgages cannot be included in a Debt Payment Programme. The Money Adviser will have to assist the client to make separate arrangements for these. Any repayments towards these will be classed as “ongoing liabilities” when calculating disposable income.
- Individuals cannot apply directly for a DAS – they must apply via an Approved Money Advisor.
- The scheme is currently only available in Scotland.
- An individual’s credit rating may be affected for up to six years after the Debt Payment Plan is complete
Bankruptcy, or Sequestration as it is known in Scotland, involves a person who has no realistic prospect of repaying their debt, having their assets and property transferred to an Insolvency Practitioner (known as a Trustee) on behalf of Creditors.
There are some instances in which it can be an advisable course of action for people with debts of more than £1500. For people with low income and low assets, there is a special bankruptcy route called LILA (Low Income Low Asset).
If a Scottish Trust Deed is not affordable, Sequestration may be a suitable solution enabling the Debtor to be discharged from their debts after one year, although the agreed affordable monthly payment normally lasts for another two years (three years in total).
How does Sequestration work?
First of all, consult a qualified and approved Money Adviser or Insolvency Practitioner who will clearly explain all the issues relating to sequestration and run through a checklist to ensure you are eligible.
- live in Scotland
- have debts of more than £1,500
- not have been sequestrated in the last five years
It is advisable to seek expert assistance and advice on sequestration to ensure it is in your best interests and that you fully understand the process.
In any case, you will need to consult an Insolvency Practitioner or an approved Money Adviser in order to obtain a Certificate of Sequestration which verifies your inability to pay your debts.
Once you have obtained a Certificate of Sequestration, your IP will apply to the Accountant in Bankruptcy (AiB) for your sequestration to be officially granted. Your application must contain evidence of inability to pay your debt and be accompanied by a payment of £200.
Usually the AiB application is dealt with speedily and a Trustee (usually your IP) is appointed to take control of your assets.
In a sequestration the Trustee will assess your assets and also your income and expenditure and determine if you can afford to make any payment to Creditors yourself or whether any of your assets can be sold to release cash towards payment of your debt.
The Trustee is also responsible for the sale of assets which can include your house, car, valuable items, savings and investments etc for the benefit of Creditors.
The Trustee also takes charge of informing all of your Creditors about the sequestration and they should no longer contact you directly. Your Trustee will deal with all further communication with Creditors on your behalf.
Sequestration lasts for a relatively short period – you can normally be discharged after 12 months.
However, you may be required to continue to make contributions from your income for a further two years, or longer in some circumstances, even after you have been officially discharged.
- Once you are declared bankrupt, Creditors are unable to pursue you or take any legal action against you to recover what they are owed.
- The Insolvency Practitioner will deal with all Creditors, removing a source of stress.
- You may be discharged from your debts after as little as 12 months – but monthly payments usually last for a further 2 years (3 years in total).
- If you are receiving welfare benefits, these will not be classed as income for the purpose of calculating contributions to be made toward Creditors.
- Individuals may find it hard to get credit for a few years after sequestration. Creditors and credit rating agencies will assess risk level based on financial history and this will include the sequestration.
- If the individual is a homeowner and has equity in their property (or has any other particularly high-value assets), this must be released to pay Creditors. There are various ways this can be done without the need to sell the property, for example through remortgage. Alternatively it may be possible to extend the contributions from income for a longer time.
- Your Sequestration will be listed on a public online register called the Register of Insolvencies and will stay there for one year after the bankruptcy is completed.
Please be aware that Refresh Debt Services only offer Debt management plans in house. If you are more suitable for a Scottish debt solution we will refer you to an appropriate 3rd party for further advice and implementation of the most appropriate solution. Speak with a Refresh Debt Adviser on 0800 121 48 63 to find out more.