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Tackling your debts

Debt Management in Scotland

Posted 10 November 2016

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Here’s how debt management works in Scotland.

If you’re unable to repay your unsecured debts and you live in Scotland, there are a few debt solutions you can look into. To find out which one is right for you, you need to speak to a debt advisor. But to give you a general idea of what you can look at, we’ve put together a helpful overview of how debt management works in Scotland.

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Why is it different in Scotland?

Scotland has its own public body that sets out to deal with debts – the Accountant in Bankruptcy – and its own laws and institutions, such as sheriffs courts.  These don’t exist in other parts of the UK.

Whilst the solutions we’ll be exploring today are only available in Scotland, there are others with similar benefits wherever you live. Explore the rest of the site to find the debt solutions available in the rest of the country.

Sequestration

Sequestration is the Scottish term for bankruptcy.

If you go through Sequestration, your financial affairs are handed over to the care of a Trustee. The Trustee decides what assets you have to sell so you can pay more money to your creditors. They also decide whether you can afford to pay something towards your debts each month. If you can, then you’d normally continue paying this for a further three years after you’ve been discharged.

Your assets are at risk with Sequestration, including your home. You may have to sell your house unless you have a low amount of equity in it or there’s a very good reason why you have to live in a certain house or area.

Sequestration lasts for one year. After the year is over, as long as you have kept to the rules of this solution, the rest of your unsecured debts included on the plan are written off. So Sequestration can potentially offer you the chance to be debt free after a year.

Trust Deeds

A Trust Deed (TD) is another option that may be right for you in Scotland – the equivalent in the rest of the UK is an Individual Voluntary Arrangement (IVA).

Trust Deeds work by lowering your monthly payments towards your unsecured debts. You only pay what is affordable for you, and it usually lasts for four years. After this time, as long as you’ve paid everything you were supposed to into the Trust Deed, the rest of your debts on the plan are written off.

One of the main differences between a Trust Deed and Sequestration is that you definitely won’t lose your house with a TD as long as you comply with the Trust Deed and release equity if you need to. It’s a formal way to deal with insolvency, and provides protection from further action from your creditors.

Minimal Assets Process

Minimal Assets Process, also known as MAP, is another route into Sequestration and it’s equivalent in the rest of the UK is a Debt Relief Order (DRO). It’s designed for people who have no money to put towards their debts each month, and who have a low amount of assets.

MAP only lasts for six months and after that time your situation will be assessed again. If your financial situation has not improved, the rest of your debts on the plan are written off. So MAP completely suspends payments on unsecured debts and writes them off after six month for people who are struggling the most with their debts.

Again this is a formal method of dealing with debts, and your creditors are not allowed to contact you for payment if it goes ahead.

Debt Management Plans

Debt Management Plans (DMPs) differ from the other solutions we’ve mentioned as they are an informal solution. This means that a DMP is not a method to deal with insolvency (although it might be right for people who are insolvent in some circumstances) and it’s not legally binding on your creditors as the other solutions are.

A DMP reduces the monthly payments on your unsecured debts to an affordable level. You still pay back everything that you owe, just over a longer period of time. You don’t have to use a debt solution provider to arrange a DMP for you, it is possible to do this directly with your creditors.

However, as we said before the agreement is not legally binding and because of this your creditors don’t have to freeze interest and charges, although they sometimes agree to.

Debt Arrangement Schemes

Next, let’s explore Debt Arrangement Schemes (DAS). This solution actually works in a very similar way to Debt Management Plans, the key difference being that they are managed by the Accountant in Bankruptcy and they are classed as a formal solution.

You still pay back everything you owe on your unsecured debts with DAS, but your payments are cut to an amount that you can afford. Because it’s formal, your creditors are obliged to freeze interest and charges. Your new payment plan is called a Debt Payment Programme (DPP), and once this is agreed it’s legally binding and your creditors won’t be able to take any further action against you.

Damage to your credit history

All the solutions we’ve mentioned in todays’ blog will damage your credit history. Each will show up there for a minimum of six years and for however long your solutions happens to last. For that time,  when a lender or service provider credit checks you, they will be able to see that you’ve had trouble repaying your debts in the past. This might mean you’re refused credit or services, or that you’re offered a more expensive rate of interest.

While debt solutions do damage your credit history, it can still be well worth starting one. This is because missing payments on your debts can result in defaults and Court Decrees, which cause exactly the same damage to your credit history. And when you start a debt solution you know that, at the end of it, you’ll be free from the worry of problem debt.

There are ways to improve your credit score after a debt solution, read our previous blog to find our more.

Find out more

Now you’ve had a brief introduction to the different solutions in Scotland, the next step is for you to contact a debt advisor. There are sometimes fees associated with the setting up and running of a solution, but the initial advice from our advisors is always free of charge. They’ll be able to expertly assess your situation and recommend the best solution for you. Just scroll down for the options you need.

by Christine Walsh

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To find out more about managing your money and getting free debt advice, visit Money Advice Service, an independent service set up to help people manage their money.