Debt management in Scotland
24 April 2012
If you're looking for a way to manage your debts, there are three options that are only available to Scottish residents with debt problems. These debt solutions range from a government-run debt management 'tool' through to an alternative way to go bankrupt.
DAS (Debt Arrangement Scheme)
The Debt Arrangement Scheme, or DAS, is a debt management solution which can help you to lower your monthly repayments to an affordable level and repay your debts in full. It only applies to unsecured debts - you cannot repay a mortgage this way.
On a Debt Payment Programme (DPP) under DAS, you can slow down your debt payments and stop lenders taking action against you. DAS also freezes any interest or charges that could have been added to your debt.
If you don't want to apply for insolvency and you think you could repay your debt in full by slowing your payments down, then DAS might be the answer. Unfortunately, when you lower your repayments it shows on your credit record for six years, which makes it more difficult to borrow money again in that time.
A Trust Deed is a type of insolvency that's only available in Scotland. It's a formal agreement with your unsecured lenders to repay whatever you can afford for (usually) three years and write the rest of the included debt off at the end, as long as you've upheld your side of the Trust Deed.
To qualify for a Scottish Trust Deed, you need to be a resident of Scotland with unsecured debts that you cannot afford. You would need to be able to afford smaller monthly payments for three years.
A Trust Deed can stop interest and charges being added to unsecured debts and stop lenders taking legal action - and at the successful end of a Trust Deed, whatever debt you cannot afford is written off. However, a Trust Deed would have a bigger impact on your credit record than DAS, because it's a form of insolvency, which would make it difficult to borrow money for six years, or open another bank account, or work in certain positions. If you're a homeowner, you might have to release equity as well.
LILA route to bankruptcy
Bankruptcy is the type of insolvency that most people have heard of, but LILA bankruptcies are less well known. The LILA route into bankruptcy was only introduced in April 2008, to help Scottish residents to apply for their own bankruptcy if they couldn't apply any other way.
LILA stands for Low Income Low Assets. A 'low income' means a 40-hour working week at minimum wage, currently equivalent to £237.20 per week (not including benefits or tax credits). 'Low assets' means assets worth less than £1,000 each or £10,000 altogether.
Entering bankruptcy through LILA will have the same impact on someone's credit rating as entering it the 'traditional' way.