What can I do about my debts?
There are a number of things that you can do. A money adviser can help you decide what is best for you.
The following are some of the choices you may have in order to deal with your debt:
Debt management plan
A debt management plan is an informal arrangement with your creditors to pay your debts over an extended period of time. Interest and fees will still accrue on your debts (unless your creditors agree to freeze interest) and they will not be written off - although if you complete the plan you should be able to pay your debts in full. You will keep control of the things you own (your assets) including your house as long as formal action is not taken against you.
You can arrange a plan directly with your creditors. You can also set it up with the help of a money adviser.
A debt management programme is not legally binding on your creditors and they can still take action to pursue the money you owe them.
Debt Arrangement Scheme (DAS)
DAS is a scheme run by the Scottish Government that gives you more time to pay several creditors, without threat of court action. You must have surplus income from which payments can be made. You will make a single regular payment under a debt payment programme (DPP).
DAS freezes interest, fees and charges on your debt (except future mortgage payments) from the date your DPP is approved and these will be written off if you complete the programme. The scheme protects your assets, including your home (as long as you keep up your mortgage payments and your ongoing liabilities).
DAS is provided free of charge by money advisers at local authority money advice units or Citizens Advice Bureaux. Other approved money advisers may charge a fee and you should check with them. A list of approved advisers can be found on the DAS website at www.moneyscotland.gov.uk.
Trust deed
A trust deed is a formal arrangement between you and an insolvency practitioner who becomes your trustee. Your trustee is there for the benefit of your creditors and they will use contributions from your income or money from the sale of your assets to repay some of what you owe.
To enter into a trust deed, you must be able to make regular payments to your trustee from your income or have assets. The trust deed transfers your rights to the things that you own (this includes your home if you own it wholly or jointly) to your trustee who may sell them to pay the costs of managing your trust deed and to pay part of what is owed to your creditors.
Trust deeds normally last for 36 months, but this can vary. Interest will still accrue on your debts during the trust deed but most debts outstanding at the end of the trust deed will be written off if you have cooperated with your trustee. The costs of administering the trust deed will be met from the money the trustee gathers in. These costs will be met before any payment is made to your creditors.
A trust deed can become protected which means that your creditors cannot take court action against you for the debts that you owed when the trust deed was agreed. If your creditors do not agree, they may be able to prevent your trust deed from becoming protected. If your trust deed cannot be protected, your creditors can still take court action against you and you can apply to make yourself bankrupt.
Once the trust deed becomes protected your trustee may make you bankrupt if you do not co-operate with them.
Signing a trust deed has consequences for you. You could lose your family home. It will affect your credit rating and you could find it difficult to get credit in the future. |
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Bankruptcy
In Scotland, bankruptcy is sometimes called sequestration.
Being made bankrupt is a very serious matter. It can lead to loss of your family home and can have other consequences. It may impact your job and your bank account could be frozen. Your credit rating will be affected and you could also find that access to future credit is not available or is only available at a very high rate of interest. |
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When you are declared bankrupt you have to hand over the things you own, including your home, if owned wholly or jointly, to a trustee who will administer your bankruptcy.
Subject to certain conditions, a creditor can apply to the court to make you bankrupt or you can apply to the Accountant in Bankruptcy to make yourself bankrupt. Bankruptcy starts when you are declared bankrupt by the sheriff or by the Accountant in Bankruptcy. A trustee will be appointed to administer your bankruptcy.
You will normally be discharged from bankruptcy after one year but your trustee still has a duty to sell the assets that transferred to them. |
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It is the duty of your trustee to sell your assets or property and to use the money to pay the costs of managing your bankruptcy and to pay your creditors as much as possible of what you owe them. You will be able to keep some things that are essential for everyday living such as beds, your cooker, your television, etc. You may also be required to make regular payments from your income to your trustee.
While you are bankrupt most of your creditors cannot take further action to pursue the money you owed them at the start of the bankruptcy. However, if you have a mortgage or other loan secured on your home, the lender can take action against you if you stop your payments to them.
Interest will still accrue on your debts during your bankruptcy but most outstanding debts will be written off at the end. You will still be responsible for any new debts run up after the date you became bankrupt.
A money adviser can discuss whether making yourself bankrupt is the right thing for you to do.
More information about bankruptcy can be found in the Debtors Guide. |
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What are my choices?
| Debt Management Plan | DAS | Trust Deed | Bankruptcy |
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Cost | Usually no cost | Usually no cost | Fees apply, sometimes paid up front | £100 application fee. Other fees usually apply |
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What happens to the interest on my debts? | Still accrues | Normally frozen | Interest still accrues | Interest still accrues |
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What happens to my house if I own it? | Nothing, as long as you keep up your mortgage payments | Nothing, as long as you keep up your mortgage payments | Your trustee may sell it | Your trustee may sell it |
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What is the effect on my debts? | Your debts are not written off. They are usually paid in full | Your debts are not written off. They are usually paid in full | Most debts will be written off at the end of the trust deed | Most debts will be written off at the end of the bankruptcy |
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Can my creditors take action? | Yes | No, only if your debt payment programme is revoked | Not if your trust deed is protected as long as you stick to the terms of your trust deed | No |
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