More than one option
There may be several solutions available or there might just be one. It will depend on your financial circumstances. Most procedures are set out by law, and their benefit is that, generally, your creditors – the people to whom you owe money – must accept the legal consequences of the solution that you choose. When appointed to act for you, we must strike a fair balance between you and your creditors.
Stop action being raised – apply for a moratorium
if you wish we can apply for a 6 month breathing space, called a ‘moratorium’ that stops your creditors from taking any new legal action against you. The moratorium is publicly registered, and gives you the time you need to consider your options and decide on a solution. Talk to us about whether you would benefit from a breathing space.
If you have run into personal financial difficulties, there are a number of debt solutions open to you:
Mandatory money advice
By law, before you choose any financial product or solution, you must take independent money advice. Dunedin Advisory are qualified money advisers and regulated by the FCA (Financial Conduct Authority) and ICAS (Institute of Chartered Accountants Society). As your money adviser, we will make sure that you get the right advice for you.
To enable us to do that, you will need to meet us and provide us with as much information about your finances as possible. The meetings can be in our offices or electronic video conferencing which we can arrange for you. Prior to our meeting we will provide you with a list of all the things you should bring to the meeting. Don’t worry if you cannot find everything – just bring as much as you can.
The law recognises that you may not be able to pay your creditors in full, either now or in the future. You can therefore declare yourself bankrupt to prevent your creditors taking any further action against you. In turn, you must surrender certain assets to the Trustee who must be appointed to deal with your financial affairs. If you can pay a contribution from your earnings, you will be expected to do so. Your contribution will usually last for four years.
Forms of bankruptcy
There are two forms of bankruptcy in Scotland – sequestration and protected trust deed “PTD”. Sequestration is a legal process. You can choose to enter sequestration voluntarily, and pick your Trustee. Alternatively you can be forced into it by a creditor owed more than £3,000, and they will choose your Trustee. Your Trustee will either be the AiB (Accountant in Bankruptcy – the government office in Scotland responsible for bankruptcies) or a licenced insolvency practitioner. A PTD is entirely your choice, and you choose your Trustee who must be licenced insolvency practitioner.
Appoint an Insolvency Practitioner
An insolvency practitioner (IP) must be appointed as Trustee in either process to deal with your estate – your assets and your liabilities – and the IP acts like a referee. Dunedin Advisory’s IPs are qualified to act as your Trustee and our aim is to make sure that everyone is treated fairly in the process.
If you acquire any windfall assets in that four-year period, such as a lottery win or an inheritance, you must declare these to your Trustee.
Assets sold before bankruptcy
Your Trustee will have legal powers to look back at transactions that you have entered in the years before the bankruptcy, to make sure that you have not given assets away or to see if you paid one debt in preference to another. We might be able to get the asset or payment back.
Impact on employment
Before deciding which procedure is right for you, check your contact of employment. Sequestration or signing a trust deed may have an impact on your job and your ability to contribute.
The benefit of both processes is that you will be discharged from your debts. That means that the creditors cannot ask you for money towards the debts that were included in your bankruptcy, you stop paying your contribution and you are no longer subject to any restrictions.
Debts you still need to pay
You won’t be discharged from any of the following debts however, and you will need to continue to pay these while bankrupt, or arrange to start paying them again at the end of your bankruptcy:
- Court fines
- Liability incurred by fraud (including benefit fraud)
- Student loans
Am I insolvent?
This is one of the first things we will work out. There are three tests we apply:
- Have you got enough income each month to cover all your outgoings? If not, you might be cash-flow insolvent.
- If all your assets were sold today, would there be enough money to pay off all your debts? If not, you may be absolutely insolvent.
- What actions are your creditors taking against you? If they have raised a court action, and formally demanded money from you, you may be apparently insolvent.
You will likely qualify as being insolvent if you pass all three tests.
Income and expenditure
We will assess your income and expenditure, either individually or by household – against a standard UK-wide formula called the Common Financial Tool (CFT). We will work out whether you have enough money after allowable outgoings excluding any money you pay to your creditors. This is called “disposable income”.
How much you pay creditors
We will then work out how long it would take to pay back your creditors, including the value of any assets that you might have. Can you pay them in full over a reasonable period? if so DAS (debt arrangement scheme) might be for you. If you cannot pay in full, you should consider sequestration or a PTD (protected trust deed).
There are only certain assets that the Trustee needs to sell in a bankruptcy process. You don’t need to include any assets in DAS.
Type of assets
Your assets are items of value such as money, savings, property, vehicles, life assurance policies, jewellery, shares and payment protection insurance (ppi). You will normally be allowed to keep items you need for day-to-day living, such as clothes, furniture, household linens, floor covering, anything used for cooking or cleaning, educational items and children’s toys.
Tools of trade
You can also keep any tools you need for your trade, up to the value of £1,000.
You may be allowed to keep a vehicle reasonably required by you, if it has a value of no more than £3,000.
If you rent your family home, we will check your tenancy agreement. If you have any rent arrears, we will work with you on how to deal with your arrears as part of your preferred option. You will then be expected to keep your rent up to date.
If you own your family home, in your own name or jointly with your partner, we will work out what equity you own. Equity is the difference between the current value of the property and what you still owe to the mortgage provider, taking into account the interest of any co-owner.
Excluding your property
As a rule, you can exclude your property and its equity from a DAS (debt arrangement scheme), and in certain circumstances, from a PTD (Protected Trust Deed). This is only if you are able to pay your debts in full from other assets or contributions in a DAS or your creditors agree the exclusion within a PTD. Otherwise, any equity you own must be included in calculating the value of your assets, and be made available to your creditors.
Maintaining your mortgage
Your mortgage provider will expect you to keep your mortgage payments up to date, and pay off any arrears. If you cannot do this, you must speak to your mortgage provider. If you do not keep up your mortgage payments, your home may be at risk. Being bankrupt doesn’t change this. There are Scottish Government schemes that might be able to help you: Mortgage to Rent and Mortgage to Shared Equity. You can get more information about both here.
Protecting your home
Your house is likely going to be your biggest asset and your most important, but we recognise it is also your home. We will discuss with you how your home will be dealt with, so that you understand and agree before entering sequestration or a PTD what will be expected of you. Wherever possible we will work with you and your family to find a way to protect your home, and allow you to stay in it.
Your details and the option that you choose will be recorded on public registers, the Register of Insolvencies and the DAS Register. These are kept by the AiB (Accountant in Bankruptcy – govt office that oversees insolvency in Scotland) and are publicly available online. Unless someone is specifically checking the Registers to find out if you have been declared bankrupt or are doing a DAS (debt arrangement scheme), it is unlikely that the information will be accessed by the general public.
The chances are that your credit rating has already been affected by your financial situation. Details of your bankruptcy (sequestration or PTD – protected trust deed) and a DAS (debt arrangement scheme) will be recorded by the rating agencies, and will show up on a search for a period of six years.
The costs of the procedure
As Trustee, we are entitled by law to be paid as part of the bankruptcy process. Our fees come out of any money we ingather: your contributions and your assets. You will be told regularly throughout the process what we have charged and the creditors have the right to challenge our fees and outlays if they think they are too high. You have similar rights of challenge but must demonstrate that you have a financial interest in the outcome of the appeal.
In DAS, if you ask us to be your continuing money adviser, you will be asked to pay an upfront fee and then an amount per month for our continuing support.
Sometimes your money problems result in or lead to other problems or issues. Debt is nothing to be ashamed of, but it can cause anxiety and affect your mental health. Debt and family breakdown are common.
There are lots of sources of support available to you. We can provide you with advice and information as well as the following organisations:
Accountant in Bankruptcy – details of the public registers and various information guides – https://www.aib.gov.uk
Institute of Chartered Accountants of Scotland – https://www.icas.org.uk
Insolvency Practitioners Association https://www.insolvency-practitioners.org.uk
Gambling Education Hub – https://www.fastforward.org.uk
Shelter Scotland – providing housing advice to homeowners and homeless https://www.shelterscotland.org
The Marie Trust – provides help to homeless people in the Glasgow area – https://www.marietrust.
Poverty Alliance Scotland – Charity Hub directory represents the group of organisations to support poverty in Scotland – https://www.povertyalliance.org
Wellbeing Scotland – voluntary organisation providing various wellbeing services for individuals & families in Scotland https://www.wellbeingscotland.org
You might also want to consider whether you are getting all the benefits or tax credits that you are entitled to, and your local CAB can help. Find your nearest branch here: https://www.cas.org.uk
How we help you
There is no substitute for detailed advice, tailored to your circumstances. Contact us and we will arrange to meet you, free of charge, for a discussion on what your options may be.
Free Options Review
Get in touch with us for a free, confidential discussion about your situation and your possible next steps. Please call us on 01592 630 085, email firstname.lastname@example.org or fill in the form below.
Get free debt advice
To find out more about managing your money and getting free debt advice, visit Money Advice Service. It’s an independent, free and impartial service set up to help people manage their money.
Their website provides advice and guides to help improve your finances. It also features tools, such as calculators, letter templates and videos, to help you keep track and plan ahead.
The Money Advice Service also offers support over the phone and online.