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How does debt affect benefits in Scotland?

Sharon McDougall - Updated - 20th May 2024 - 2 minutes to read

The coronavirus pandemic has created huge financial uncertainty for households across the country, and benefits have been fundamental in helping people on low incomes or who have lost their job.

Universal Credit (UC), Housing Benefit, and the Council Tax Reduction Scheme in Scotland, are just three types of benefit that support lives and incomes, but what happens if you have debt and you’re on benefits?

What happens if you’re in debt and on benefits in Scotland?

If you’re in debt and have lost your job, or are experiencing a severe loss of income, it can be almost impossible to keep up with repayments to creditors. It’s vital to seek professional support in these circumstances, to improve your situation and understand the options available.

Scotland Debt Solutions has been helping Scottish residents deal with debt since 1989, and can provide the trustworthy advice you need when you’re in debt and claiming benefits. So how does debt affect benefits in Scotland? Can creditors take monies directly from your benefit payments?

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How does an earnings arrestment affect benefits?

Earnings arrestment is a form of legal action, or ‘diligence,’ which creditors can take to recover their debts. If you’re employed, an earnings arrestment means that some of your earnings will be ‘ring fenced’ and then deducted to pay your creditor.

Benefit payments are not supposed to be taken in this way, but if they are paid into a bank account and a bank arrestment is in place on that account, they may be caught up in that bank arrestment order.

So what is a bank arrestment?

How are benefits affected by a bank arrestment?

A bank arrestment works in a similar way to an earnings arrestment. A specific sum is earmarked for payment to a creditor, and frozen in your bank account so that you cannot withdraw it.

There are rules in place as to how much can be arrested in this way, with the limit currently standing at £529.90 - this sum is known as the ‘protected minimum balance.’ If your income consists solely of benefit payments these should not be included in the bank arrestment, but you need to make sure they are clearly identifiable within the account.

What happens to benefits during Direct Earnings Attachment (DEA)?

Being in debt can also affect your benefits if you’ve been overpaid by DWP. Overpayments can be reclaimed by the Department for Work and Pensions via a Direct Earnings Attachment.

No court order is needed in this instance, but if the attachment is going to lead to hardship because benefits are your only source of income, you may be able to ask the court to cancel it.

What are some formal debt solutions if you’re on benefits?

Eligibility for some debt solutions in Scotland, such as the Debt Arrangement Scheme (DAS) and Scottish Trust Deed rely on receiving a regular wage. If you’re in serious unmanageable debt, and benefits are your only source of income, however, you may be able to enter sequestration via the Minimal Asset Process, or MAP.

Sequestration is the Scottish term for bankruptcy, and the Minimal Asset Process is a form of sequestration that helps people with no assets, or very few assets, to deal with severe debt.

You can still apply for MAP when your only income is benefits, and be free of debt in six months. The Minimal Asset Process was introduced by the Scottish government in 2015 to make it easier for people in unmanageable debt to deal with the problem.

For more information on the Minimal Asset Process, and guidance on how debt affects benefits in Scotland, please get in touch with our expert team. Scotland Debt Solutions can offer you a free, same-day meeting, and works from offices around Scotland.

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Sharon McDougall


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