Alternatives to Bankruptcy in Scotland

Options Include Protected Trust Deeds and Debt Arrangement Plans

Oct 31, 2009

Declaring personal bankruptcy in Scotland should always be the final option. With the help of an insolvency practitioner there are a number of alternatives to explore.

In Scotland personal bankruptcy can be initiated by a creditor, following a petition to the Sheriff Court by the debtor or in some circumstances by a trustee managing a Protected Trust Deed.

The bankruptcy process is a life changing experience affecting areas including, the capacity to get credit, the ability to open more than the most basic bank account and in some cases it will mean the loss of employment. It is not therefore not a process to be entered into lightly.

Thankfully for many who find themselves overwhelmed with debt there are alternatives. Three of the options are:

Debt Management Plans

A Debt Management Plan is a non-formal repayment arrangement between debtor and creditor to repay the outstanding debt, with interest frozen, over a longer period of time. For many this is an excellent way of clearing the debt without the spectre of bankruptcy hanging over them. Debt Management Plans can be negotiated directly between debtor and creditor or through a reputable debt management company.

The best advice about whether to go it alone or get some help is most definitely to get some support from a debt advice agency. The down side of a DMP is that a creditor is not obliged, legally or morally, to go down this route. Even if they initially agree to the plan they can change their minds and revert to other methods of debt recovery.

Debt Arrangement Scheme

A Debt Arrangement Scheme is a statutory programme run by the Scottish Government. It is designed to help those with multiple debts repay them without the creditors pursuing them or instigating court action to recover the debts.

The Debt Arrangement Scheme, once it’s agreed freezes all interest and other charges associated with the debt. The amount of time it takes to become ‘free’ of outstanding debt depends on what a person can afford to repay each month. This amount is agreed between the debtor and their money advisors.

Protected Trust Deed

Like the Debt Arrangement Scheme the Protected Trust Deed is only available in Scotland. The equivalent in other parts of the UK is the Individual Voluntary Arrangement (IVA).

The Protected Trust Deed is a legally binding document and once agreed the debtor is protected from further action by the creditors. Like bankruptcy, signing a Protected Trust Deed will affect a person’s credit rating for some years to come. A trustee, who must be a registered insolvency practitioner, will administer the Trust Deed.

If the debtor meets the monthly payments agreed they would normally become debt free after three years. However if the payments are not met, the trustee has the power to force the debtor into bankruptcy.

The information in this article is necessarily brief and any person contemplating a debt relief programme in Scotland should contact a reliable and independent financial adviser. The Citizens Advice Bureau is a good place to start.

This article is compiled using journalistic research and is not offered as financial advice.

The copyright of the article Alternatives to Bankruptcy in Scotland in Personal Debt Management is owned by Neil Gunn. Permission to republish Alternatives to Bankruptcy in Scotland in print or online must be granted by the author in writing.