Make an informed decision on your financial future with information about the most popular debt solutions for residents of Scotland.
For further information about debt solutions in Scotland you can visit Money Advice Service.
Scottish Debt Solutions
Solutions available in Scotland are different to those available in England and Wales. Here we offer you some Scottish debt advice by providing an overview of the main Scottish debt solutions available in Scotland include:
Debt Arrangement Scheme (DAS)
What is a Debt Management Scheme?
The Debt Arrangement Scheme is a free debt management solution that is only available in Scotland. It is available to anyone based in Scotland who are experiencing difficulties coping to repay the debts they owe to creditors. The schemes have the backing of the Scottish government and were created to offer people some form of protection from court actions by creditors
It allows you to repay your debts over a period of time that you can afford over regular payments. Repayments will be based upon your disposable income. All interest, fees and penalties will be frozen and then waived upon completion of the scheme.
Unlike Sequestratian and Trust Deeds, they don’t involve full-blown insolvency or discussions around what percentage of the debt is to be paid back or written off. A DAS is based on the creation of a Debt Payment Scheme (DPP) which will formalise the plan for how the full amount of debt will be paid back over a specified period.
Under a DAS you can set up a debt payment programme (DPP) and make one regular payment into the DPP. This payment is then divided amongst your creditors. A DAS approved Money Advisor will liaise with creditors and debtors to reach an agreement.
How much does a DAS cost?
It is free of charge to set up a debt payment programme under a DAS. Money Advisors are not allowed to charge you to set up a payment programme. Furthermore you don’t have to pay any administration fee. This will be paid by the creditors.
How long does a DPP last?
It’s all dependant upon your level of debt and your disposable income each month to repay the debt. You’ll only be able to set up a DPP if you can pay the debt over a reasonable time, which may be considered to be 10-20 years. It will end once you’ve cleared all the debt, whether that be through regular repayments or a lump sum.
Is a Debt Arrangement Scheme right for you?
You may want to consider the following criteria. If the following apply, a scheme may be right for you:
- You don’t want to sell your home i.e. if you have equity in your home and don’t want to risk it by using other debt options
- Your job might be affected by other debt options if you work in the financial sector, or acting as a company director
- You have enough disposable income and a stable job to make regular payments
- You live in Scotland
- If you can pay back the debt in a reasonable amount of time. More than Many years for example, may be considered to be unreasonable
What are the Pros and Cons of a DAS?
- Interest and debt charges are during the period of the scheme
- You can apply for a moratorium meaning creditors can no longer take enforcement action against you
- You will not have to sell off any assets or belongings as you might have to with other debt options
- A DPP will not prevent you from working in certain jobs
- A Debt Management Scheme will impact your credit rating for the period you have it
- It will be hard to borrow money during the period of the scheme
- You will need to pay regular contributions over a longer period of time
- Although you may be able to negotiate with your mortgage provider or landlord, it doesn’t prevent them from taking steps to take possession of your home.
What is Sequestration?
It is a form of insolvency that transfers an individual’s assets into the control of a Trustee so they can distribute them amongst creditors in the best way possible.
Sequestration is only available in Scotland. Sequestration laws are very similar to the bankruptcy laws abvailable in other parts of the UK. It’s a form of insolvency that is usually designed to be a last resort and when somebody is unable to meet their unsecured debt repayments. Creditors can force a person into sequestration so they can get their debts repaid part or in full. Alternatively, an individual can place themselves voluntarily into sequestration.
Is Sequestration right for me?
You may want to consider the following criteria. If the following apply, Sequestration may be right if you:
- Live in Scotland, or have done so in the last year
- Have not been made bankrupt in the last 5 years
- Have no money, or very little money to pay off your debts and your circumstances are unlikely to change in the near future
- Have very few assets and little property
- If you have debts over £3,000 and you’re unable to meet agreement with the creditors you owe money to
How do I apply for Sequestration?
You will need to speak to a qualified Insolvency Practitioner to review your circumstances and eligibility. They will see if Sequestration is right for you, or another form of debt solution such as a Trust Deed or Debt Arrangement Scheme.
If it is the best way forward, you will need submit a Certificate of Sequestration to the AIB. They will process your application within 5 working days and appoint a Trustee to look after your affairs. The Trustee will then decide the best course of action to settle your debts, whether it be through selling your assets or a repayment plan, or a combination of both.
The Trustee will take full responsibility of managing your creditors, meaning you will no longer need to deal with the creditors again?
What are the Pros and Cons of Sequestration
- It enables you to draw a line under all the unsecured debt problems and make a fresh start
- Your trustee will liaise with all your creditors on your behalf
- All current enforcement action will stop immediately, such as arrestment orders
- You can apply to the Accountant in Bankruptcy for a moratorium to stop your creditors taking further action against you
- Going bankrupt will impact your credit rating for 6 years
- It will be much harder to get any form of borrowing during the course of the bankruptcy and in the future
- You will be unable to hold certain jobs, act as company director or be self-employed
- If you obtain any form of money or property i.e. inheritance, within the first 4 years of the bankruptcy it may be claimed by the trustee
- You may need to sell your assets or belongings
- You may need to pay regular contributions, whether they come directly from your wages, or if you have enough disposable income.
How much does Sequestration Cost?
You will need to pay a £200 fee to the AIB (Accountant in Bankruptcy) who are the administrators for personal bankruptcy in Scotland.
How long does Sequestration last?
Sequestration normally lasts for a period of a year and you will not be able to take any form of credit during this time. Most debts will be written off after year with some exceptions, including criminal fines, student loans, fraudulent debts and child maintenance charges.
You will need to make some form of contribution from your income, based on your disposable income, for a up to 4 years
Will I be added to a public Insolvency Register?
You will be added to the Register of Insolvencies which is a public register. This will be for five years
Protected Trust Deed
What is a Protected Trust Deed?
It’s only available in Scotland. It is legally binding document and a form of insolvency where you unsecured debts need to be greater than than value of assets or belongings that your possess. It is similar to an Individual Voluntary Arrangement available in other parts of the UK.
Is a Trust Deed Right for me?
You may want to consider the following criteria. If the following apply, a Deed may be right for you:
- You live in Scotland
- You have over £5,000 or more in unsecured debt. If you’re debts are significantly higher, you may need to consider other forms of debt solution
- It is usually suited to people with large credit card, store card debt, overdrafts and other unsecured loan debt such as payday loans and personal loans. So much so, that you’ve been unable to keep up repayments
- The aim is to consolidate the debts mentioned above, but does exclude form forms of debt including student loans, child maintenance arrears, fraudulent and criminal debt
What are the Pros and Cons of a Trust Deed
- Your bank account will still be open during the course of a Trust Deed
- It shouldn’t affect your employment
- Your Trustee will liaise with all creditors on your behalf, therefore they won’t contact you
- Creditors will not add any additional interest onto your debt
- If you have kept up with the monthly repayments, a proportion of your debt will be written off at the end of the trust deed
- More often than not, you will be able to keep you home. If you have a large amount of equity, you may need to remortgage or extend the length of the deed
- It will negatively impact your credit rating and will remain on your record for six year
- It doesn’t include all unsecured debt
- Creditors will need to accept the proposal otherwise you will be unable to obtain protected status and be at risk to bankruptcy. This will also be the case if you don’t keep up with repayments or the terms of the deed
- You may need to remortgage or sell your house
- By entering into a trust deed it will be made public on the Register of Insolvencies
Minimal Assets Process (MAP)
A Minimal Assets Process bankruptcy is aimed at writing debts off that you are unable to repay over a reasonable time period. It’s suitable for people with a low income and minimal assets. It’s cheaper and not as complex as a full-blown bankruptcy, or Sequestration. You need to apply through an approved financial person.
- MAP bankruptcy is cheaper than Sequestration and only costs £90
- The majority of unsecured debts are included in a Minimal Assets Process Bankruptcy
- Once it is approved creditors will stop chasing payment and can’t charge any more interest or take court action
- In most cased you’ll be discharged from the MAP banruptcy, during which time most of your debts will be written off
- You won’t need to go to court
- It doesn’t include all debts such as student loans, child maintenance and court fines
- It can impact some forms of employment or tenancy agreements
- It is likely your bank accounts will be frozen
- Your credit rating will be impacted for six years. Furthermore if you’re self-employed it will impact your ability to get credit.