Personal Insolvency Scotland

Personal insolvency can refer to any individual or self employed business owner such as a sole trader or a Partnership. Liability works differently from corporate insolvency procedures as liability for any debts rests with the individual.

What are my personal insolvency options?

Personal debt can build up very quickly. If you are struggling to pay your bills and your debts are mounting, don’t panic. There are several personal debt advice services in Scotland who can provide solutions that can help. It is important that you speak to an adviser and explain your situation in detail. Once they understand exactly what problems you are facing, they will be able to find a solution for you.

There are three main formal debt solutions which are widely used in Scotland.

These are;

• Debt Arrangement Scheme (DAS)
• Protected Trust Deed
• Sequestration (bankruptcy)

The Debt Arrangement Scheme (DAS)

This scheme was set up by the Scottish Government to help people who are struggling to manage their debts and who are receiving increasing pressure from creditors. A DAS freezes your unsecured debts including interest and fines. A Debt Payment Program (DPP) is then started. The DPP combines all your unsecured debt into a lower, and more manageable single monthly payment. You should be aware however, a DAS can run for several years as you are agreeing to continue making payments until 100% of the money you owe is paid back. The benefit of the scheme comes from the protection it offers you from your creditors.

Once a DAS is approved it becomes a legally binding agreement that both yourself and creditors have to comply with.

Read more about > Debt Arrangement Schemes

Protected Trust deed (PTD)

• Minimum of £5,000 of debt
• Minimum payment period is 4 years

Trust Deeds are a widely used voluntary agreement between you and your creditors. Control of your assets and property is transferred to a Trustee who takes on the responsibility of working out how best to repay your creditors.

A repayment plan is created based on what you can afford and an end date is set. Trust Deeds normally run for 4 years with any remaining debt being written. If you are able to pay your debt off in under 4 years then you will not be accepted for a Trust Deed.

A Trust Deed can be used without obtaining the ‘protected’ status but this would leave you open to the possibility that one of your creditors could decide to change their mind and restart legal actions. If your deed is protected they are barred from doing this. You should always seek to obtain a ‘Protected’ Trust Deed.

Read more about > Trust Deeds

Sequestration (Bankruptcy)

If you do not have enough money to pay for your current debts and too little left over at the end of the month to make a reasonable monthly contribution to a Debt Payment Plan then Sequestration may be the best option.

Sequestration can be a very useful tool and one of the quickest ways to generate a fresh start. It allows you to gather up all your unsecured debt and essentially write it off. You will have to deal with some negative aspects such as a lowered credit rating, difficulty obtaining new credit initially and some jobs do not accept someone who is bankrupt.

As with any insolvency procedure you need to speak to a professional and make sure the decisions you are making are the right ones for you and your current financial situation. Sequestration is not without its downsides but it can be one of the quickest ways to become debt free.

Routes into Sequestration;

• Minimal Asset Process (MAP) – you apply voluntarily and must owe at least £1,500. Have been on benefits for at least 6 months and have assets under £2,000.
• Standard Sequestration – you apply voluntarily and must owe at least £3,000
• Creditors Sequestration – your creditors petition the courts to have you Sequestrated. Must owe at least £3,000
• Failed Debt Payment Plan – if a previously arranged plan has failed then your creditors may wish to pursue Sequestration

Typically, most people are discharged from Sequestration after a period of 12 months. Depending on your circumstances you may have to pay a ‘debtor contribution order’ for up to 4 years.

Read more about > Sequestration

Ask your creditors to write of your debts.

Do not rule out asking your creditors to write off you debts. The answer is almost always no, however in exceptional circumstances creditors may consider writing your debt off. For example, if you have developed an illness and you are going to be unable to work for a long period of time then it may be worth providing your creditor with evidence to support your case and see what they say.