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Tackling your debts

What debt solutions are available in Scotland?

Posted 25 August 2016

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Learn how debt solutions in Scotland work with our blog.

If you’re struggling with debt in Scotland, there are a number of solutions available that might be what you need to turn your finances around. 

In this blog, we’re going to look at the different solutions available in Scotland, how they work and – most importantly – how to find out which solution is right for your particular situation. 

If you don’t live in Scotland but feel like your debts are getting on top of you, you can have a look at the range of solutions available in the rest of the UK here

Is there a difference in debt solutions in Scotland?

Most of the debt solutions in Scotland have a counterpart that offers similar benefits in the rest of the UK. For example, an Individual Voluntary Arrangement (IVA) is a solution which offers similar benefits to a Trust Deed in Scotland, and sequestration is simply the Scottish form of bankruptcy.  

There are some differences in how the debt solutions work in Scotland just because of certain differences in the law. But in general, you should find that there is an appropriate solution to help you get debt free whether you live in Scotland or in any other part of the UK. 

What solutions are available in Scotland?

Here’s a list of the solutions available in Scotland to deal with unmanageable debts:

• Sequestration (the Scottish form of bankruptcy),

• Trust Deeds,

• Minimal Assets Process (MAP),

• Debt Management Plans (DMP), and

• Debt Arrangement Schemes (DAS).

As you can see, there is a number of solutions designed to help people in all sorts of different circumstances. All the options listed can only help with unsecured debts, such as credit cards and personal loans – you can’t add secured debts onto them. 

What’s the difference between the solutions?

Let’s take a brief look at the differences between the solutions and how they work. 

There are some debt solutions allow you to pay back everything that you borrowed – just at a lower monthly cost than you originally agreed to, like Debt Arrangement Schemes (DAS) and Debt Management Plans (DMP). So to be able to start either, you have to be able to pay back everything you owe on your unsecured debts in a realistic and reasonable timeframe. 

Then there are other solutions that will write off part of your debts after you’ve paid towards them for a certain length of time, like Trust Deeds and in some cases sequestration. Trust Deeds last for a minimum of four years and after this time, the remainder of your debts are written off if everything has gone to plan. Sequestration lasts for a year, but you may be expected to pay towards your debts for up to four years if your Trustee decides you can afford it. 

Minimal Assets Process (MAP) is different again and is designed to help people who have few assets and a low income. This solution is actually another way into sequestration, but if you qualify for MAP you won’t be expected to make any contributions to your debts at all. If your circumstances don’t improve after six months, the all of the debt on the plan is written off. 

There are negative aspects to each debt solution that you need to be aware of before you enter into any of them. For example, they will all have a negative effect on your credit rating for at least six years. This means that you may find it harder or more expensive to obtain credit in the future or to get a service that requires a credit check.

Find my solution

Informal versus formal

You might have heard the terms informal and formal when researching debt solutions and be wondering what they meant. 

Put simply, formal debt solutions are ones that are legally binding on you and your creditors. A Debt Management Plan (DMP) is the only solution in the list above that is classed as informal – all of the others are formal. 

Once you’ve started a formal solution, your creditors cannot take further legal action against you. You come to an agreement about how much you pay each month to them and as long as you keep to your end of the deal and stick to the rules of the solution, your creditors can’t suddenly decide they want their contractual payment again and change the amount they want. 

On the other hand, formal solutions can sometimes mean that you have extra rules to follow whilst you’re on the solution. For example, when it comes to sequestration you will have restrictions whilst it’s ongoing which include not being allowed to take out more credit or creating, managing or promoting a company. 

Generally speaking, informal solutions are easier to change part-way through and offer more flexibility, whereas formal debt solutions offer more guarantees but may prove harder to change. 

How do I know which one is right for me?

Speak to a debt advisor to find out which solution is right for you. Starting any one of these solutions is a serious decision and will have a lasting effect on your financial life. In fact, you’re not actually allowed to apply for certain Scottish debt solutions, like Minimal Assets Process (MAP) and Debt Arrangement Scheme (DAS) without speaking to a Money Advisor first. A Money Advisor will base their recommendation for you on various factors, including how much you owe, how much money you have to put towards your debts each month and other personal circumstances. 

The options on the left will put you in touch with one of our advisors here at Debt Advisory Centre who are trained to give advice about tackling debt in Scotland. There’s also lots of free information and help from the Money Advice Service. 

Are debt solutions a good idea?

In the right circumstances, a debt solution can really work to solve your debt problems. You just have to make sure that you’ve spoken to an expert before you make any decisions as starting the wrong debt solution can make your situation worse. 

If you want to find out about any of the Scottish debt solutions we’ve mentioned in this blog in more detail, don’t hesitate to get in touch with us using the options on the left.

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.