Moneyadvice

Types of Debt

There are two broad categories of debt ‘types’: priority debts and non-priority debts.

It is important that we get priority debts under control first. They can cause several potential legal problems such as eviction from rental properties, repossession of property if you own your home, disconnection of service, fines, and even imprisonment in some cases.

Examples of priority debts include:

  • Mortgage
  • Rent
  • Council Tax
  • Court Fines
  • Gas and Electricity
  • Parking Charges
  • Benefit Overpayments
  • Child Maintenance
  • TV License
  • Social Fund Loans
  • Tax Credit Overpayments

There are other debts which are considered ‘non-priority debts’, but also require our attention:

  • Credit & Store Cards​
  • Bank & Building society debts​
  • Catalogues​
  • Personal debts to friends and family​

Debt Enforcement

Debt enforcement, or the collection of unpaid debts is different in Scotland than it is in other areas of the UK. Many of the terms used when discussing debt are used in place of one another, so it is important to understand the different terminology used in different parts of the UK. 

Examples of Debt Enforcement:

A County Court Judgement (CCJ) is a legal court judgement by a creditor against a debtor whom they believe will not repay the money that they owe them. CCJ’s are used in England, Wales, and Northern Ireland. In Scotland, the equivalent practise for the judgement of the court is known as a ‘decree’ (see the decrees section for more information). You may hear some organisations referring to a decree as a CCJ, so it is important to know what each is, as well as the differences between them. A CCJ is the judgement to advise the debtor to pay the debt owed back and give several options to them to do so including – 
  • Pay the amount in full immediately.
  • Request to pay later or via instalments.
  • Dispute the amount claimed that is owed.
  • Claim against the creditor.
If no response is made or the terms of the CCJ are not met, further action may be taken such as taking belongings of the debtor to repay the debt. A CCJ will be added to a public database known as the Register of Judgements, Orders and Fines unless:
  • The full amount is paid within 30 days of the CCJ being issued.
  • The CCJ is successfully disputed and prove to the courts that it was issued in error – they may cancel the CCJ or ‘set aside’ and not record this on the Register. This judgement will remain on the register for a period of 6 years and can be viewed by anyone with access, which can be obtained for a small fee.
Removing a CCJ from a credit file Someone who has had a CCJ issued against them can request these be removed from their credit file by credit reference agencies if:
  • The full amount has been paid within 30 days of the CCJ being issued.
  • A full 6-year period has passed since the CCJ was issued (normally an automatic removal after 6 years).
  • There has been a dispute raised and it was agreed by the courts that this would be ‘set aside’ or removed.
  • The debt was the fault of a third-party insurance company.

What is a decree?

A Decree is the Scottish equivalent of a CCJ and is a judgement issued by the court in relation to a claim made by a creditor to a debtor.   

The details of Decrees are supplied by the Sheriff Courts to the Registry Trust who maintain the records containing all small claims and summary cause money decrees granted in the Sheriff Court in the past 6 years.  

The Registry Trust notifies all credit reference agencies of all decrees, recalls and dismissals regularly to update the credit records. These remain on the debtors’ credit file for a period of 6 years. This will show on the file as ‘Satisfied’ when it is paid in full.  

The procedure for satisfaction in Scotland is different to England and Wales in as far as the court does not submit a certificate of satisfaction, but a letter of satisfaction from the pursuer of the court action must be submitted to the Registry Trust with details of the original court action.  

Removing a Decree from a Credit File 

The process of removing of a decree from a credit file is like the removal of a CCJ in England, Wales or Northern Ireland, however there is more specific details on the procedure which differs dependant on the route of the initial action and whether this has been through Simple Procedure / summary cause or Ordinary cause procedure.  

Summary Cause cases are straight-forward cases handled through small claims court.  

Ordinary Cause procedure is for more complex cases, such as divorce (and claims for more than £5,000). The Ordinary Cause rules set out the entire procedure.  

More complex cases that can also be dealt with through ordinary cause include acts of Sederunt (e.g., action such as repossession of property due to mortgage arrears, enforcement of occupancy rights due to a relationship breakdown for various reasons).  

Express powers are granted to some creditors, forcing them to pay suddenly with a summary warrant. These creditors are:
  • Department of Work and Pensions (DWP)
  • UK Government
  • Child Support Agency (CSA)
  • Local Authority (For Council Tax)
  • Creditor with agreement registered with the Book of Council and Session or Sheriff Court
  • Local Authority and fines Enforcement Officers of the Scottish Court Service

‘charge to pay’ or ‘charge for payment’ is an official statement from the court to advise they have agreed to a court order for a creditor to pursue a debtor for a specific debt.  

Every ‘charge for payment’ or ‘charge to pay’ must be accompanied by a Debt Advice Information Package (DAIP) (leaflet) and if it was not, the charge is not legally correct. The creditor must send this out to a maximum of 48hrs of the charge being sent.  

A creditor can force a debtor to pay a debt if:  

  • A court of tribunal has issued a decree or decision for the money owed.  
  • A time to pay arrangement has been broken by the debtor.   
  • A Summary warrant has been issued because the creditor has powers to ask the court of tribunal to issue it.  

The creditor has the power to do the following once a decree or decision has been made as part of the process:  

  • Arrange for deductions from salary / wages.  
  • Arrest funds from bank / building society accounts.  
  • Place an order on property to stop it being sold. (inhibition or final decree).  

Arrange for an attachment of possessions that can be then auctioned later to pay towards the debt. 

Wage arrestment can take effect once a decree or decision from a court action or tribunal has been made, and the ‘charge for payment’ or ‘charge-to-pay’ has been issued by the creditor and is usually delivered by a sheriff officer. These deductions are made directly by the employer and it is worth checking the following with the employer:

  • Is the arrestment legal?
  • Is the money definitely owed?
  • Has the creditor issued a DAIP? If no, then the correct procedure has not been followed.
  • Have the correct rules of deduction been made?
  • Is the correct amount being deducted in line with guidelines?
  • Are there multiple creditors?
  • Are there multiple debts? If so, the limits apply to the total debt and employer deductions must be to these limits as maximum.

 The Creditors Procedure – Wage Arrestment – Arrestment Schedule 

Legally, a creditor cannot arrest wages in their entirety. There is a set schedule of arrestment amount, depending on the frequency of pay. Remember that it is possible for multiple arrestment from different creditors to be applied to a debtor’s salary, and this must be taken into consideration when assessing potential debt solutions.

Wage Arrestment Exceptions (Non-Creditor)

There are exceptions, where non-creditors can make deductions from wages via arrestment.

These potential non-creditor deductions from wages include:

  • Deductions from Earnings Order (DEO) – Arrears of child support – used by Child Support Agency or the Child Maintenance Service.
  • Direct Earnings Attachment (DEA) – Overpayment of benefit – used by the Department for Work and Pensions (DWP).

Some employers can initiate disciplinary action for wage arrestment if this is part of the debtors’ contract (financial services, law professions, license holders etc).

A creditor with the relevant authority can freeze the bank / building society accounts of debtors. There is a minimum protected balance amount that a creditor cannot access, however anything over and above the protected minimum can be arrested up to the full amount owed, as well as any court / legal costs.  

There are several options that can be discussed to object to a creditor being able to do this:  

  • ‘Undue hardship’ – for the debtor and their families (especially relevant for recipients of benefits).  
  • Have been allowed time to pay by the court as per a ‘time to pay agreement’.  
  • Incorrect process used by creditors.  

The bank should be able to differentiate between different earnings to ensure vital funds (such as benefits for dependents) are not frozen as part of the arrestment.  

Bank Arrestment Steps

There are 4 steps that a creditor goes through to arrange a bank arrestment from a creditors account:  

Stage 1 – Court or tribunal decision for payment of a debt or warrant issue and charge served.  

Stage 2 – Formal document – ‘schedule of arrestment’ served on bank / building society.  

Stage 3 – Bank / building society freezes accounts – all funds in excess of the protected £529.90 are frozen.  

Stage 4 – Funds automatically released to the creditor 14 weeks after the date of the schedule of arrestment. 

Secured Debts & Mortgages  

If a debt, such as a mortgage or secured loan against a property falls into arrears, then the creditor can take action against the debtor(s) in order to pay the arrears, include selling the property.  

Unsecured Debts  

When action taken is for unsecured debts, the pursuant creditors can take legal action to stop the debtor selling their home / property. An inhibition stops the debtor selling their property and keeping any profit from the sale.  

NOTE: Similar to wage arrestments, a creditor MUST issue a debtor with DAIP (Debt Advice and Information Package) – If this has NOT been issued, then any inhibition can be challenged.

The creditor’s procedure – Sale of Home / Possessions Step 2 – Have the correct procedures been followed?

The ‘charge for payment’ or ‘charge to pay’ must have been issued along with DAIP package, in advance of any action of a sheriff officer being carried out, and goods being legally taken.  

If the correct process has not been followed, of if there is an attachment against their possessions, the debtor should seek advice to ensure all the options have been made available to them.

Sequestration / bankruptcy can be initiated by creditors against:  

  • A single creditor in the UK or another member state who is owed £3,000+  
  • Multiple creditors in the UK or another member state who is owed jointly £3,000+  

If the debtor is currently involved in a Debt Arrangement Scheme (DAS) or a Protected Trust Deed, and is maintaining their payments, their creditors cannot legally make them Bankrupt or take them through Sequestration procedures. 

‘Attachment’ in relation to debt, is the removal and sale of a debtor’s assets at auction to repay towards the debts owed to the creditor. There are 3 types of attachment and what how a situation is handled will depend on the type of order that the creditor has:   

  • An Attachment  
  • An Interim Attachment  
  • An Exceptional Attachment  

Only possessions outside of the home can be taken away and sold at auction (Interim Attachment and & Attachment)  

This excludes:  

  • A mobile home which is the only residence. 
  • Tools required for work (<£1K).  
  • Tools reasonably required to keep the garden in order.
  • Vehicles <£3K required (evidence will be required). 
  • Clothing & Toys – These will be belongings of children.  
  • Furniture, bedlinen, cooker & computer that are reasonably required.

 

 

Exceptional Attachment  

 

An exceptional attachment allows items within the home can be taken away and sold at auction. Most essential goods are exempt from exceptional attachment.   

The sheriff officer has powers to open places that have been shut or locked to remove any goods that are not exempt to put into sale.

Debt Solutions

There are various debt solutions available to help creditors deal with any problem debt that they have.

These include -

Informal measures can be sought out to try and help pay off your debts.

These measures include –

  • Consolidation loans
  • Token payments
  • Full and Final Settlement
Solution 1: Consolidation Loans

 

A consolidation loan is the borrowing of money to combine all your existing debts into one. This then leaves a single payment to be made and only one debt to pay.

There are two kinds of consolidation loans:

  • One is a secured loan where assets are tied to the debt (e.g., your house) and if you fail to pay the debt, the assets may be repossessed.
  • Unsecured loans that do not have any assets tied to them.

A consolidation loan is only useful in select circumstances and financially may not always be the best option. A consolidation loan can be more expensive than other kinds of debt that you had before. If you cannot pay a secured loan, then your home may be at risk. A consolidation loan can be a good option if it leads to reduced payments or a reduction of interest.

Consolidation loans are useful for clearing specific debts such as credit cards and loans.

If you can effectively manage to meet your repayments, possess a stable set of finances, and can keep spending under control, a consolidation loan may be the best option for you.

Before you consider borrowing to help pay off your debts:

  • Ensure you have enough money left in your budget (after paying for essentials) to keep up with your repayments.
  • Make sure it is practically feasible for you to afford the repayments for the whole duration of the loan.
  • Shop around for the best deals.
  • Avoid borrowing more than you require.
  • If a consolidation loan is used to help pay off your credit cards, avoid using your card and taking on additional debt.

If you acquire a consolidation loan, tread carefully – you do not want to end up in a position where you are in more debt than what you started with.

It is vitally important to not borrow money from a loan shark. This is someone who lends money without a licence (which is illegal). You can report loan sharks on the Trading Standards Scotland website or you can call 0800 074 0878.

You should always seek out advice from an independent financial adviser prior to signing a new loan agreement. Furthermore, ensure that the financial adviser is regulated by the Financial Conduct Authority (FCA). You can check this on the FCA Register (fca.org.uk)

NOTE: Before taking a consolidation loan, it is strongly advisable to receive debt advice from an approved debt adviser first.

 

Solution 2: Token Payments

 

If you are not able to make payments to your debts in full, it can be useful to offer token payments to show your wiliness to pay. Token Payments are less than the previously agreed amount and constitutes the amount that you can reasonably pay at that time.

A creditor does not have to accept token payments. Token payments are useful as a short-term solution to being unable to pay debts, especially priority ones. However, it can only be used so long before the creditor decides to take action to recover the debt, and you will still have to pay the amounts owed.

NOTE: Before requesting token payments from a creditor, it is strongly advisable to receive debt advice from an approved debt adviser first.

 

Solution 3: Full and Final Settlement

 

A ‘Full and Final Settlement’ is an offer you can present to a creditor where you pay them part of your debt to them as a lump sum and in exchange, they write off any that remains.

The self-evident advantage is that you will no longer be in debt to the creditor(s) you make the agreement with.

However, this solution requires the creditor to agree. This means that they must believe that the lump sum is enough to justify writing off the debt, and that it is preferable to receiving more debt payments. The lump sum will need to be a significant portion of the amount owed.

The fact that the debt has not been paid in full will appear on your credit record, and can show that the debt was not repaid in full.

NOTE: Before doing this, it is strongly advisable to receive debt advice from an approved and independent debt adviser first.

A Debt Management Plan (DMP) is an agreement with creditors to pay off all your debts. This can be agreed between the debtor and the creditor directly, or through a licensed debt management company. Licensed debt management companies can charge fees for administering the DMP. Some debt management charities that act as licensed debt management companies can offer this free of charge.​​

Suitability:​​

  • Debtor can only afford to pay a small monthly repayment amount.​​
  • The debtor has debt problems but will be able to make repayments to these debts over several months.​

Debt Management Programmes include UNSECURED DEBTS but excludes any debts that have been guaranteed against a property, such as secured loans and mortgages.​​

You are not legally bound to a DMP and can cancel this at any time, unlike other debt solutions where you are tied to the monthly repayments until you are discharged by your Trustee.​​

Joint Debts and DMP​​

  • If the debt is in joint names, and it is only one of the parties entering into a DMP, the creditor may chase the other person for all the debt. The term ‘Joint and several liability’ means that if one party is unable to fulfil their commitment on a joint debt, then the other party becomes responsible for the debt in full.​​
  • If there are joint debts and both partners in the debts are struggling financially, then the option of a joint DMP would be potentially beneficial.​

Pros and Cons of the DMP

PROS​​

  • You only need to pay what you can afford to creditors after a monthly budget is created.​​
  • Household bills can be added to the DMP if there are arrears with these. Ongoing monthly payments are still required, but the arrears can be split across the duration of the DMP.​​
  • Payments are managed by the administrators of the DMP and only one lump-sum monthly payment is made to the administrator, making it easier to manage outgoings.​​
  • Regular reviews mean that affordability criteria are met as an ongoing concern.​

CONS​​

  • Some creditors may still contact you.​​
  • Interest and fees – Creditors are not obliged to stop these. Many will, however it is not an enforced requirement. If they continue to do this, the total amount owed will increase.​​
  • Further enforcement action may take place, and creditors can still pursue the debtor for the debt via legal channels​​.
  • The debtor’s credit rating continues to be affected for 6 years after the DMP has ended. Some debts may show as ‘partially settled’ and this appears on the credit file for 6 years.​ 

How do you set up a DMP?

  • Set up a plan with a FCA regulated Debt Management Company.
  • Provide Income and Expenditure Details, including assets, debts, and creditors.
  • Debt Management Company contacts your creditors and asks them to agree to the plan.
  • Two Possible Options may occur:
    1. Creditor rejects the plan – The creditor may either request the full debt be paid later or possibly pursue enforcement action to recover the money owed.

Creditor accepts the plan – This means that that regular payments will now be made through the DMP arrangements.

A Debt Arrangement Scheme is a scheme that can help people repay their debts in a manageable way, removing the threat o court action from their creditors.

Through a Debt Arrangement scheme, the debtor sets up a Debt Payment Programme (DPP), making the one regular payment which is shared between their creditors.

DAS may be a suitable option if: ​

  • The debtor can only afford to pay a small monthly repayment amount. ​
  • The debtor has debt problems but will be able to make repayments to these debts over several months.​
Eligibility Criteria for DAS
  • Client Normally resident in Scotland.​
  • The client has been advised by a DAS-Approved money adviser.​
  • The client wants to repay the debt without further action from the creditor (debt collection, legal action etc).​
  • Have a reasonable level of disposable income after monthly basic needs (i.e. rent, household bills, council tax, food etc).​
Those excluded for eligibility for DAS: ​
  • Those involved in Protected Trust Deeds.​
  • Those who are bankrupt / subject to BRO or BRU​.
  • Those whose DAS only includes a singular debt and subject to a time to pay direction (under section 1 or 5 of the Debtors (Scotland) Act 1987) in relation to this debt.​
  • Those whose DAS only includes a singular debt and subject to a time order (under section 129 (time orders) of the Consumer Credit Act 1974 (d) in relation to this debt.​
  • Those paying a debt or debts under a conjoined arrestment order.  (exception if a creditor is involved in the conjoined arrestment order or not, has tried to lawfully enforce another debt owed).​
Pros and Cons of DAS

There are several benefits using this scheme:

  • You will not pay interest or debt charges until the end of the DAS. 
  • You can apply for a 6-week moratorium where creditors cannot take enforcement action for debts.
  • You will not need to sell your assets.
  • Your employment will not be affected.
  • Almost all unsecured debts can be included. 

However, there are several drawbacks:

  • You will need to maintain payments as part of the programme.
  • Your home can still be repossessed if arrears that persist. 
  • Your landlord can evict you if you have rent arrears that persist.
  • The amount of money you can borrow will be limited.
  • You cannot include certain types of unsecured debt such as student loans, fraudulent debt, child maintenance arrears and court fines.
  • Remember that entering formal debt arrangement schemes and applying for Bankruptcy / Sequestration makes it harder to obtain credit in the future and can have implications for employment in the Financial Services / Legal / Licensed industries. Those going through Bankruptcy cannot act as company director.

DAS Guidance for Couples (with Joint Liability) and Businesses

Couples

 

Couples who have joint liability for a debt which may be included in a debt payment plan if they are:​

  • Spouses or civil partners of each other; or​
  • Living together as if spouses ​

Both applicants must consent to the proposal

 

Businesses

 

Partnerships, trusts, or incorporated bodies can also seek to repay their debts over a certain period (Stipulation Maximum 5 years).​

Excluded from applying for DAS in this category:

  • Limited or public companies​.
  • Not formed under Scots law​.
  • Those established or carrying on business outside of Scotland.​
DAS Process
  • Proposal sent to all creditors.
  • After 21 days, either one of the two following outcomes will happen:
    1. Creditors accept the proposal/no response. The debt payment programme goes ahead.
    2. Creditors reject the proposal. The debt payment program can still be approved if fair and reasonable to do so.

NOTE: ONCE DEBT PAYMENT PROGRAMME APPROVED, CREDITORS MUST COMPLY WITH DAS LEGISLATION.

 

Variations on Debt Payment Programs

 

If the situation of the debtor changes, the Debt Payment Programme can be varied to take account of this.​

The debtor, creditor or money adviser acting on behalf of the debtor can apply to the DAS Administrator for a variation to the programme.​

No compliance with the conditions of the Debt Payment Programme may cause it to be revoked, and power to resume legal action against the debtor will take effect. This means that the creditors can add all charges, interest and penalties that are due as if the DAS / Debt Payment Plan never existed.

 

Conditions of a Debt Payment Program

 

  • Make the first payment under the debt payment programme within 42 days of approval.​
  • Make all payments on the date that they are due.​
  • Pay a ‘continual liability (such as rent or council tax) when due for payment.​
  • Make no additional payments to creditors other than a payment due under the programme (excludes continuing liabilities).​
  • Do not apply for additional credit over and above the allowed amount unless permitted by the DAS Administrator.​
  • Notify money adviser / DAS Administrator of any changes to address or circumstances within 7 days of the change (i.e., changes in employment etc).​
  • Provide info / evidence within 10 working days of request from money adviser / DAS Administrator.​
  • Make payments in respect of credit agreed and obtained under the rules of DAS when these are due.​
  • Give all notices and intimation as required by a debtor under the regulations.​
  • Complete and return any tax / duty return or declaration on time and pay any sums due on time. ​
  • Notify the DAS Administrator if a Money Adviser does not act on their behalf unless the Money Adviser has resigned / suspended or revoked.​
  • A Debt Payment Programme may also be subject to further conditions as advised by Money Adviser / DAS Administrator (subject to approval). This includes but is not limited to a request to gain money from the sale of an asset, guarantee of extra payment s such as a lump sum from any future income or any other reasonable income or any other reasonable condition.​

IF A DEBTOR BREACHES ANY OF THE CONDITIONS, THEIR DEBT PAYMENT PROGRAMME MAY BE REVOKED​.

 

Variations on Debt Payment Programs Part 2 – Reaching the Conclusion of it

 

The Debt Payment Programme reaches its conclusion when all payments have been made as agreed, a lump sum payment has been made of all the payments due, or all creditors agree in writing to the completion of the programme prior to the end of the schedule of payments.​

From this point on, the debtor cannot be held responsible for any more payments towards the debt, the interest, charges, or penalties that would be incurred during the duration of the scheme.​

At this stage, all the debtor’s information is removed from the DAS register and the creditors are informed of the completion of the scheme. ​

NOTE: LIKE TRUST DEEDS AND IVA, THERE WILL BE EVIDENCE OF THE ARRANGEMENT ON THE DEBTORS CREDIT FILE FOR UP TO 6 YEARS. THIS WILL BE LISTED AS ‘PARTIALLY SATISFIED’ OR ‘PARTIALLY SETTLED’ AGAINST EACH OF THE DEBTS​.

A Trust Deed is a formal agreement between the Debtor (The person in debt) and the Creditor(s) (The company / person the debt is owed to) utilising a third party (the ‘Trustee’) to administer and repay towards the debt. This repayment is based on affordable payments to the debtor.​

The agreement is legally binding, with reduced payments, typically made over 4 years, at the end of which any unsecured debts are written off. ​

This solution is for people with more than £5,000 of unsecured debt.​

This is a Scottish method of debt management, the equivalent in England and Wales is an Individual Voluntary Arrangement (IVA).​

 

Careful Considerations for Debtors

 

Some careful considerations must be made before entering a Trust Deed: ​​​

  • Day-to-day – You must keep accurate budget / records for 4 years. Trust Deeds present restrictions on expenditure and restrictions on hire purchase options.​​
  • Employment – You cannot work in some jobs / positions if you have entered a Protected Trust Deed – it may lead to disciplinary action and / or dismissal.​ If you are already in one of these jobs (financial or legal jobs and the licensed trade), you should seek advice before entering a Protected Trust Deed or any other form of insolvency.
  • Details will be entered onto a register of insolvency (ROI) for a period of 5 years. This is available to be viewed by the public.​​
  • Details of the Trust Deed will appear on your credit file 6 years after discharge (Possibly longer).​​
  • Risk of Bankruptcy / Sequestration if Trust Deal fails.​

 

Pros and Cons of Trust Deeds

 

Benefits of a Trust Deed:

  • If agreed with creditor the debt is ‘frozen’ at the start of the arrangement – continued co-operation means no further interest or charges being applied.​​
  • Correspondence with creditor limited – no chasing for payment or addition of interest or charges.​​
  • Can keep essential vehicles under £3,000.​​
  • No need to physically appear in court.​

 

Drawbacks of a Trust Deed:

  • An insolvency Practitioner takes a charge for their service out of the monthly repayment – it is important to understand what this will be.​​
  • A Trust Deed may affect terms of employment. (Certain roles require disclosure).​​
  • There is a risk of bankruptcy / sequestration if the Trust Deed fails.​​
  • The debtor’s Credit rating is affected for 6 years.​

 

Trust Deeds – Why do Creditors Agree?

 

Many creditors agree to the Trust Deed as it means that they will be able to realise more of the original debt by co-operation with the debtor than they would without (Something is better than nothing).​​

It is a formal agreement therefore the debtor is more likely to ensure payments made on time.​​

There are no legal costs or a lengthy legal process for the creditor to realise a similar amount as would be through the Trust Deed.​

Risk of Bankruptcy / Sequestration if the Trust Deal fails.​

 

Debt Types – Trust Deeds

 

CAN BE INCLUDED IN TRUST DEED​​​

  • Credit Cards​​
  • Overdrafts​​
  • Store Cards​​
  • Personal Loans​​
  • Council Tax​​
  • Water rates​

 

CANNOT BE INCLUDED IN TRUST DEED​​​

  • Fines, penalties, compensation, and forfeiture orders imposed by any court​​.
  • Liability due to fraud.​​
  • Student Loans​​.
  • Money owned to someone holding security in property (inc. secured creditors).​​
  • Secured debt​​.
  • Any liability arising after the date of the granting of the Trust Deed​.

 

Trust Deeds – Process

 

  • Complete honest Income and Expenditure assessment with the client.
  • Referral to insolvency administrator/trustee.
  • Advertisement in Edinburgh Gazette.
  • Trustee writes to creditors setting out proposed terms of the trust deed.
  • Creditors are given time to accept/reject the trust deed.
  • If no objections are received trust deed becomes ‘protected’.
  • Trustee writes statement of accounts to creditors, debtors, and the AiB.
  • Trust Deed begins (typically 4 years).

 

Income and Expenditure

 

All areas of Income and Expenditure reviewed in detail. (Refer to AiB guidelines – Annex 3).​

Areas of acceptable expenditure agreed based on Common Financial Statement Figures (CFS). These are a standardised set of figures which are not made public but kept confidential as these are already set at the agreed and reviewed maximum spending guideline figures.

 

Trust Deed Administration

 

Step 1: Valuation of Assets – the valuation of the debtor’s assets to be included in the Trust Deed when equity may be available. ​

Step 2: Realisation of the Assets – The sale of assets valued by the IP, the equity of which is paid to Trustee / creditors. (Can be through the extension of the Trust Deed Period).

Step 3: Creditor submits claims – Creditors submit their claims to the trustee of the amounts owed.

Step 4: Adjudication of creditor claims​ – The claims submitted are considered by Trustee – tolerance of 10% of claim.​

Step 5: Interim Dividend calculations​ – The calculation of the amounts to be paid to creditors from realised amounts (contributions + realised assets)​.

Step 6: Trustee Fees – The fees for the administration of the Trust Deed paid to the Insolvency Practitioner (IP) / Trustee agreed at commencement of the Trust Deed.​

 

Debtor’s Discharge from a Trust Deed

 

This is not an automatic process – the application must be made to the AiB for discharge if the Trustee is satisfied that, to their knowledge, the debtor has met their obligations under the Protected Trust Deed (PTD) and have co-operated in the administration of the PTD.​

The Accountant in Bankruptcy (AiB) will not discharge a debtor if they are not satisfied that the debtor has co-operated for the duration of the PTD and that this has impacted on the final dividend return to creditors.

The AiB will also refuse to register the discharge if they are not satisfied that full declarations have been made of assets and income and that the appropriate amount and number of contributions have been made.​

‘Sequestration’ is the name for the process of bankruptcy in Scotland.​

Like other forms of debt management, the debtor’s assets are passed over to a trustee to manage the sequestration, sale of assets and distribution of the proceeds realized from the sale.​

The laws that govern sequestration in Scotland are very similar to those governing bankruptcy in the rest of the UK.​

There is no real difference between the two in terms of the administration, responsibilities, and process.​

Minimal Assets Process, or MAP bankruptcy is a form of bankruptcy aimed at people with low income and few assets. ​

MAP – Pros and Cons

 

Pros:

  • Client will not need to appear in court.​
  • MAP bankruptcy costs £90 in comparison to more expensive sequestration process.​
  • Discharge from MAP is within 6 months as opposed to longer period in sequestration / bankruptcy.​
  • Creditors – Can chase debt / add any charges, interest, or take court action.​
  • Most unsecured are debts included. 

Cons:

  • Like standard sequestration / bankruptcy, credit rating will be affected for 6 years.​
  • Bank likely to close / freeze accounts, meaning only basic bank account will be available.​
  • Potential to be evicted if in private let.​
  • Some debts not included (Student loans, child maintenance & court fines).​
  • Self-Employment – obtaining credit for goods and services more difficult.​

Further Information

If you require additional information and support for any of the topics, please check out the following links:

More information about bankruptcy is available on the Accountant in Bankruptcy’s website

For a copy of the template sequestration letter, see certificate_for_sequestration_-_2010.pdf

More information on the MAP scheme can be found on the Accountant in Bankruptcy website here – aib_-_opc_-_publications_-_faq_-_map_pre_award_and_rejection.pdf