Common debt solutions in Scotland

Residents of Scotland who are experiencing difficulty with debt have access to a wide range of options that could potentially alleviate their situation. Having lots of options can present its’ own challenges however as it can be confusing to weigh them up. In this article we detail some of the main options and summarise how they work.

A debt management plan is the most used debt solution in the UK. The arrangement is known as being “informal”. This means that neither the debtor nor the creditors are “bound” by the relationship. This provides flexibility for a debtor, but also creates exposure. Even if creditors agree to a debt management plan they may later change their mind. Where a DMP works correctly, a monthly payment will be made until such time as the debts are fully repaid.

The Debt Arrangement Scheme is quite similar to a debt management plan. The debtor commits to pay an amount that they can afford towards their debts; this continues until such time that the debts have been fully repaid. While less flexible than an informal debt management plan, the Debt Arrangement Scheme overcomes the exposure issues identified in connection to a debt management plan. Once it is all in place the debtor is protected from legal action by included creditors and interest will not be charged provided that they see the programme through to completion.

More serious debt situations may require more serious measures. Where the debt levels are comparatively high attention may turn to measures such as a protected trust deed. This is sometimes referred to as a Scottish trust deed or simply abbreviated to “trust deed”.

A trust deed is quite similar to bankruptcy in some ways. Both are forms of formal insolvency under Scottish law. In a trust deed the debtor commits to pay their surplus income, the value of significant assets and the value of assets that they may acquire during the trust deed to help repay their creditors. Typically the term will be three years. In some circumstances a trust deed may help a debtor to protect their assets or employment (in comparison to bankruptcy) but this is a very technical area in which specific prior advice should be sought.

Not everyone can afford to make a contribution towards their debts each month via a debt management plan, Debt Arrangement Scheme or a protected trust deed. In such circumstances bankruptcy may be the best route to choose. This will pose challenges however for those with assets and they must be especially careful to understand their position before they go ahead.

Depending upon the circumstances involved one of a number of routes to bankruptcy can be used. Some people can approach the Accountant in Bankruptcy directly to organise the process. Other people may require an intermediate process to be completed first known as a Certificate for Sequestration. In more complex cases where a monthly contribution is viable or assets exist people choose to appoint a Trustee themselves to deal with the bankruptcy. 

With a number of debt solutions being available the value of professional advice comes to the fore. Debt advisers will want to understand the circumstances before directing any individual to a solution that is specifically suitable for them. Professional debt advisers will review income, expenditure, debt, assets, employment and attitudes to various issues before offering their advice.

Author: Scottish trust deed forum provides advice from experienced trust deed professionals, plus news and information on trust deeds.