Inverness CAB

Dealing With Debts, What Are The Options

a) Informal Arrangement / Debt Management Plan (DMP)

If you cannot pay all of your debts you could consider writing to, or telephoning your individual creditors to see if you can reach some compromise including freezing interest and charges. If successful this would probably result in lower or token payments which in turn would mean you taking longer to pay off your debts.

A Debt Management Plan can be used long term or short term depending on your circumstances and other possible future options.

The disadvantage with an informal arrangement is that it is not legally binding so some creditors may not freeze interest and charges or could ignore it in the future, requesting full payments and possibly re-instate interest and charges where frozen. (Your credit rating can also be affected)

Please note that there are numerous fee charging Debt Management Companies offering this type of service which you could do yourself or with the help of CAB or other agencies offering a free service. If you do decide to use one of the companies who charge a fee for their services, we would strongly advise that you check the terms & conditions, deposits & fees that you would be responsible for in setting up a plan and also any hidden charges as there is evidence of misleading advice in this sector.

This guide includes a Debt Management Pack to assist you with YOUR OWN DEBT MANAGEMENT PLAN.

Useful Contacts for free debt advice.

Inverness C.A.B Money Advice                      08444 994111
Highland Council Money Advice                      01463 228709
Consumer Credit Counseling Service (CCCS)     0800 1381111

b) Debt Arrangement Scheme.

The Debt arrangement Scheme, commonly known as DAS is a legally binding agreement which allows those with more than one debt to enter into a formal repayment programme. While in a DAS no creditor can take any enforcement action, although they may still instigate legal proceedings and obtain decree, but providing repayments are being made they cannot enforce payment by other means. DAS provides protection for assets which could be sold and protects income after a creditor takes legal action.

In order to enter into a DAS you, must obtain the help of an approved money advisor. You must be habitually resident in Scotland and have sufficient disposable income to be able to repay the debt in a reasonable time. Anyone who already has a co joined wage arrestment, under a Trust Deed or un-discharged bankrupt will not be eligible for a DAS.

DAS is useful if you have more than one year’s council tax to pay; should you be unable to reach an agreement with the Local Authority, a DAS would prevent them from taking enforcement action. You will need to have sufficient disposable income in order to pay off the debt in a reasonable time. As council tax is collected by a legal mechanism called a summary warrant that does not allow debtors the option of asking the courts for time to pay, DAS gives a legal structure to address arrears and remove the threat of enforcement.

It should be noted that your landlord or mortgage lender can still obtain possession orders for your home. Useful Contact for DAS. www.moneyscotland.gov.uk

c) Re-Mortgaging / Financing

Re-mortgaging / financing can sometimes be a suitable option for dealing with your debts. However this usually means increasing your overall debt, sometimes substantially. As you may be aware, there are many companies offering these types of deals as an easy option and often claiming their services are free. We strongly advise you obtain advice from the CAB before re-mortgaging or re-financing.

d) Mortgage to Rent

The Mortgage to Rent scheme is a special scheme aimed at owner-occupiers who are in danger of losing their home because of mortgage arrears. The scheme allows someone to change from being the owner of the property to staying in the home as a tenant. The Mortgage to Rent scheme is only available to certain people in certain circumstances and for this reason anyone considering this option must have received advice of the advantages & disadvantages of this scheme from a suitable money advisor.

The scheme is administered by Communities Scotland on behalf of the Scottish Parliament. Useful Contact. Communities Scotland. www.communitiesscotland.gov.uk

e) Protected Trust Deed

A protected trust deed is a voluntary arrangement which is more informal than sequestration, because it does not go through the courts. It allows those with multiple debts obtain relief from the debt in 3 years. If a client enters into a protected trust deed her/his assets and property will be transferred to a trustee. A trustee is an accountant who specialise in insolvency, who will then manage the financial affairs with the aim of paying creditors as much as possible of the debt owed to them.

A Protected Trust Deed will have to be funded by you as there is no money from the public funds to facilitate this. The Trustee duty is to identify all assets you have, including property, vehicles, endowment policies and any other assets that could be sold to pay a dividend to creditors. They will also look at what expenditure costs you have and what surplus income would be available after everyday living costs are met. All assets and excess funds would be used to fund the deed and pay dividends to creditors.

Regrettably we have seen many clients who have entered into a Trust Deed which they have not fully understood and we strongly advise that you talk to at least 3 companies offering this service before you enter into any agreement and take advice from a suitably qualified money advisor before making your final decision, as once the deed had been signed it is legally binding.

f) Bankruptcy

Sequestration is a Scottish legal term for the process which results in a debtor being formally declared bankrupt by a court. Bankruptcy maybe the best option for dealing with debts and can allow people to clear all their debts and make a fresh start. At present you would be discharged after 3 years but the law is about to change and in some circumstances can be reduced to 1 year. If you own your home or have valuable assets both can be at serious risk. You should check your employment contract and tenancy agreement for clauses on insolvency if applicable.

There is a fee to pay £63(at 9/07) but those on Job Seekers/income support will be exempt.

There is much less stigma attached to becoming Bankrupt nowadays. Sequestration notices are not advertised in the local or national press. Instead they are required to appear in an HMSO trade publication called the Edinburgh Gazette which is not on public sale at local newsagents. This means that friends or neighbours may not easily know about the situation from the press.

Please note that there are advantages & disadvantages with bankruptcy and we would strongly advice that you should seek advice from the CAB before deciding on this option.

Inverness CAB can advise you on the advantages, disadvantages and implications of bankruptcy. We can also help with the completing the application.

Useful Contact Accountant in Bankruptcy 0845 7626171
helpline@aib.gsi.gov.uk

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