Debt solutions if you have equity or assets

August 10, 2015

If there is equity available in your home or you own certain assets such as a vehicle, they may be used to reduce your level of debt should you enter into a formal insolvency procedure.

Certain Scottish debt solutions utilise assets to increase the amount available to repay creditors; others allow you to avoid their inclusion altogether. The decision as to which option is most suitable should be guided by a qualified money advisor or Insolvency Practitioner.

Debt Arrangement Scheme (DAS)

This is an insolvency route which involves paying back all of the debt. You repay affordable amounts over an extended period of time, and although it will take longer to become debt-free, your assets are not included within the DAS.

This scheme is backed by the Scottish Government, and as long as you adhere to its terms and conditions, your assets will not be at risk. Interest and charges on the debt are frozen once terms are agreed, enabling you to take control of your debt via a regular income.

Debt consolidation loan

This type of loan consolidates all of your borrowing into a single monthly payment. The drawback is that loans of this type require collateral to be provided, and are generally secured on a property.

This puts your home at risk of repossession if you fail to keep up repayments. Whether or not this route is advisable depends on your individual circumstances, and the guidance of a money advisor is vital.

Protected Trust Deed

This is a common route into insolvency in Scotland, and involves reaching a formal agreement between you and your creditors. The Trust Deed only becomes ‘protected’ if more than 50% of creditors who are owed in excess of a third of the total debt agree to its terms.

There may be a requirement to sell some or all of your assets, and release some of the equity in your home in order to boost returns for creditors. Having a Protected Trust Deed offers significant advantages, however, as your creditors can no longer pursue you through the courts, and are unable to enforce sequestration.

If you do not agree to include your home within the Trust Deed, you may find that creditors are reluctant to agree its terms.

How is the property included within the agreement?

Your Trustee will arrange for the property to be professionally valued, and transferred into their control. They may require you to remortgage, or potentially sell your home, to provide a lump sum payment for creditors.

It is worth remembering that, even if there is little equity in your home when a Trust Deed is being negotiated, the Trustee may decide to have the property valued again towards the end of the agreement, in anticipation of an increase.

Sequestration

Bankruptcy, or sequestration as it is termed in Scotland, involves the transfer of all assets including your home, into the hands of a Trustee. Assets are subsequently valued and then sold in order to generate the funds needed to repay creditors.

If you have unsecured debts totalling £1,500 or more, you may be able to enter sequestration voluntarily. In order for one or more of your creditors to force you into bankruptcy, your debts need to be a minimum of £3,000.

A licensed Insolvency Practitioner will be appointed to administer the process and liaise with your creditors, as well as decide on the proportion of total debt that you will need to repay.

It is not always the case in sequestration that you have to sell your car. Should it be required to enable you to work, you may be able to retain ownership, but this decision will be made by your Trustee. The vehicle’s value is taken into account, and if it is worth more than £3,000 it may be regarded as a high value asset, and need to be sold.

The worry of losing control over your assets can be overwhelming when you have significant debt. That is why it is so important to make sure you enter the right insolvency solution for your circumstances.

Scotland Debt Solutions has offices throughout Scotland, and can help you decide on the best course of action.