Lost my job and can’t afford our bills. What can we do?

May 8, 2015

If you have lost your job and are unable to pay the bills, the first thing you should do is make a list of all your creditors. You will need to prioritise them, and then contact each one in turn.

It may be possible to negotiate an unofficial arrangement with some creditors to repay what is owed over a longer period of time. It is crucial to contact your mortgage lender if you have a property, as your home could be repossessed if you do not act quickly.

What are priority debts?
Secured loans, utility bills and tax can be regarded as priority debts. These should take precedence over unsecured borrowing such as credit and store cards. Even though it may be tempting to pay off arrears on a credit card, you must think about keeping a roof over your head and all associated household bills.

You may be able to get help to pay your mortgage interest, but this is dependent on claiming certain benefits after job loss. Support for Mortgage Interest (SMI) is paid directly to the lender, and although it does not assist with the capital repayments, having the interest paid for you could ease the pressure a little.

You may also be eligible for the Home Owners’ Support Fund. This is run by the Scottish Government and involves two options to help you avoid your home being repossessed:

  • Mortgage to Rent – a housing association or local authority buys your home and then rents it back to you.
  • Mortgage to Shared Equity – the Scottish Government buys up to 30% of the equity in your home. You remain liable for its upkeep and maintenance, but the mortgage repayments are reduced according to the level of equity purchased.

Formal insolvency procedures
If an arrangement with unsecured creditors is not possible, and they threaten legal action, you will need to seek the advice of a professional money advisor or Insolvency Practitioner.

There is a range of formal insolvency procedures in Scotland, but some of them require you to be in receipt of a regular income from employment in order to be eligible. These include the Debt Arrangement Scheme and Trust Deeds, and being unemployed/claiming benefit means that these will probably not be available to you.

Sequestration
Sequestration is the term used in Scotland for bankruptcy. During sequestration, an appointed Trustee takes control of your assets for sale to meet unsecured debts. This procedure is generally seen as a measure of last resort by all parties.

Upon appointment, your Insolvency Practitioner or Trustee will confirm that you are in fact insolvent, and that no other insolvency procedures would be more appropriate in your circumstances.

If you own a property, it may need to be sold or refinanced to meet creditor demands. The cost of selling or refinancing your home will influence the IP’s decision, however, as this may in practice be counter-intuitive in the long-run if the costs of doing so are too high.

Another asset that will come under the Trustee’s scrutiny is your car, particularly if it is valued at more than £3,000, but consideration will also be given to your need for the vehicle.

Minimal Asset Process (MAP)
The Minimal Asset Process allows people in debt to enter sequestration of their own accord, rather than having to wait for a creditor to take action against them. This process was previously known as Low Income Low Asset sequestration.

The following eligibility criteria apply to MAP:

  • Debtors must not own their own home
  • They must owe more than £1,500, but not more than £17,000
  • There should be no disposable income available, or the debtor must be in receipt of certain benefits for a minimum of six months
  • The total value of assets held must be £2,000 or less, with no single asset being valued at more than £1,000 (apart from a car, which can be worth up to £3,000)

Hopefully, you will find another job and be able to get back on your feet financially. Scotland Debt Solutions provide guidance for people in financial difficulties, and can offer advice on all formal insolvency procedures.

John Baird

Insolvency Adviser

Tel: 0800 063 9250

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