Options for struggling borrowers in Scotland

Published on 11/12/2012 11:52

Advertorial Feature

With Scottish unemployment rising back above 8% in the third quarter of the year, Debt Advisory Centre Scotland has supplied this article to remind borrowers of the debt help that's available north of the border.

Latest figures from the Office for National Statistics (ONS) show 218,000 Scottish residents were unemployed between July and September this year, with over 1.5 million classed as 'economically inactive'.

Meanwhile, charities warn of the rising number of borrowers struggling with payday loans - and the Financial Services Authority (FSA) tells us that eight in ten borrowers with interest-only mortgages have no repayment plan and risk retiring with serious mortgage debts to repay.

These are just samples of the issues facing Scottish residents. One thing that really stands out is the sheer range of problems: while one person worries about finding work, another worries about how they'll cope when they stop work altogether.

Which all underlines why there's a range of debt solutions. Struggling Scottish residents have access to debt solutions that don't exist in the rest of the UK: Protected Trust Deeds and the Debt Arrangement Scheme (DAS).

Protected Trust Deeds
As a form of insolvency, a Trust Deed can be the best way forward for someone who can't afford to repay their unsecured debts in full over a reasonable time period. It involves the borrower, their lenders, and an Insolvency Practitioner (an IP - a professional with the qualifications and experience to handle insolvency cases).

Before a Trust Deed can start, the individual and their IP will work together to draw up a Trust Deed proposal. Unless there are objections from a certain number of their lenders, the Trust Deed will become protected: they'll benefit from protection against action by their unsecured lenders, as long as they stick to the terms of the Trust Deed.

They'll make an agreed number of monthly payments, designed to fit around essential expenses such as their utility bills, mortgage/rent payments, food costs, etc. If they're a homeowner, they might also have to release equity from their property.

Once they've fulfilled their side of the agreement, their lenders will write off any remaining unsecured debt included in the Trust Deed. If the Trust Deed fails, they may be made bankrupt.

The Debt Arrangement Scheme (DAS)
Unlike Trust Deeds, the Debt Arrangement Scheme is designed to help people who can repay their unsecured debts over time - as long as they're allowed to do so more slowly, since they can't afford the repayments they originally agreed to.

People who enter a Debt Payment Programme (DPP) under DAS will make lower payments (again, specifically calculated to be affordable) until their debts have been repaid in full. They'll have the interest frozen on those debts and they'll also be protected against legal action by their lenders.

Again, a DPP has to be approved by their lenders before it can go ahead - although the DAS Administrator actually has the power to overrule lenders' objections if they think the DPP should go ahead.

The disadvantages
As you'd expect, there are downsides to entering a debt solution. Someone who enters a Trust Deed or the Debt Arrangement Scheme will find it affects their credit rating, which can make it harder to obtain further credit (or open a bank account).

Another drawback is the 'publicity'. The Register of Insolvencies provides details of insolvencies in Scotland - and that includes Protected Trust Deeds. It's an online public register which can be searched free of charge.

DAS isn't a form of insolvency, but the DAS Register is another online public register that provides information about people who've entered DAS, or who intend to apply.

The alternatives
DAS and Trust Deeds aren't the only options available to struggling borrowers in Scotland. For some, bankruptcy really will be the best answer. Others will find they can resolve their debt problems if they reassess their budget - if they take a good look at their income and expenditure and find ways to bring their finances back under control.

One problem is this: figuring out what to do can be very difficult, which is why professional debt advisers are there to help people go over their finances and decide on the approach that's right for them.

For more information on DAS and Trust Deeds, visit www.dacscotland.co.uk.