Managing personal finances is not an easy task for many, particularly those with fixed income and variable expenses. Debt of varying degrees is often the only means of bridging the gap and without great discipline, managing these debts can become overwhelming sooner than later. Problems associated with mounting debts are multidimensional and can oscillate between stiff interest charges and bankruptcy. Several debt products have been designed in Scotland to help people get relief from debts and rebuild their financial history. The following are among the debt relief products that you can examine and choose.
LILA or the low income low asset debt plan in Scotland is equivalent to the DRO that is in force in the rest of UK. In force since April 2008 for residents of Scotland with minimal assets and income with a qualifying limit of maximum £10.000 worth of assets and no single asset valued above £1,000. In most situations this scheme is a precursor to bankruptcy and therefore should be opted after careful consideration of every other solution.
PTD (Protected Trust Deeds)
For Scottish residents, the protected Trust Deeds or PTD is a contract the legally allows and binds the residents to repay debts at an affordable rate of interest and the other charges remain frozen. More importantly, any remainder of the debt at the end of a 3 year term is written off. However, more than one third of the creditors should not object to the PTD. A creditor agreement is mandatory for a PTD and this cannot be guaranteed at all times. All unsecured debts can be included in the PTD and further action from creditors will be prevented once you are in the PTD. Creditors cannot apply interest charges once the PTD comes into force.
Failure to comply with the terms of the PTD can potentially lead to other repercussions which may include bankruptcy. Once the PTD is in force, further credit will be denied to you. Home owners may have to release their home equity to pay off the creditors. After completing the PTD, you credit rating may suffer for the following 6 years. Only unsecured credits like credit cards, personal loans, store cards, catalogue accounts and bank overdrafts can be included in the PTD. Creditor agreement mandated under the PTD cannot be guaranteed at all times.
DAS (Debt arrangement scheme)
As opposed to the PTD DAS allows debtors to spread out the repayment over a longer period of time resulting in reduced monthly payments. To qualify under the scheme, you must be a resident of Scotland and have more than a single debt.
DMP (Debt Management Plan)
Under a debt management plan or DMP a single payment after setting aside money for your living expenses and priority debts is used to make an equitable distribution among other creditors. Creditors may also be requested to waive a part of the monthly payment and reduce interest charges. However, they are not obliged to accept these requests and in such situations, the negotiations will be ongoing. It is important however that monthly payments under the DMP are made regularly on the appointed date.
DMP is more flexible compared to other options you may have and if your circumstances change, the monthly payment may be adjusted. Most creditors accept freezing of interest charges and drop additional charges. Once the DMP gets under way,, credit may not initiate further action.
DMP is an informal arrangement and a change of mind from the creditors should be factored in. Your credit rating may suffer and your ability to raise fresh credit may be compromised. While monthly payments may come down through the DMP, you should expect to pay over longer period of time resulting in more cash outflow in the aggregate. Interest may continue to accrue particularly on the arrears and the rate of interest may be higher.
Under Scottish laws, sequestration is the equivalent of personal bankruptcy. When a court declares a debtor to be bankrupt sequestration proceedings will start and you turnover your property or assets to a trustee. The trustee in turn sells them and the money received is used for managing the sequestration and pay the creditors generally on an equitable basis. If you earn regular wages, a part of that will also go towards sequestration.