What are the best options for me based on my level of debt?

When it comes to debt, there is not a one size fits all solution; what may be suitable for one individual may be completely inappropriate for someone else. In Scotland there are three main solutions all of which can help indebted individuals take control of their financial issues and start planning for a debt-free future. They are:

• Debt Arrangement Scheme (DAS) – This is a government-backed scheme which gives you additional time to pay back the money you owe. This is not classed as an insolvency procedure as you will be required to pay back the full amount of your debt.
• Trust Deed – This is essentially a fixed-term payment plan which usually last for four years. During this time you will be required to pay your creditors an agreed monthly payment. Once the trust deed comes to an end, any remaining debt will be written off
• Sequestration – This is the Scottish term for bankruptcy and is the most serious form of personal insolvency. All your debts will be cleared once you enter sequestration, however, you must transfer all your assets, including your home, to your assigned trustee.

Quite often the most appropriate solution depends on the level of debt and the size of your income in relation to this. Here are three scenarios to help you decide which option may be right for you.

“I have less than £5,000 of debt”

With less than £5,000 of debt you will not qualify for a trust deed as your debt does not pass the minimum threshold. This leaves you considering either a DAS or sequestration.

With a DAS you will be required to pay back the entirety of your debt but you will be given longer to do this allowing you to make smaller monthly repayments. You will need to have a regular income and have money left over after you have paid your day-to-day living costs in order to qualify. Due to this, a DAS is often a great option for those who have a relatively small amount of debt in comparison to their income.

When dealing with debt many people worry about whether they will have to sell their home or other personal assets. If you opt for an insolvency procedure such as a trust deed or sequestration, then this is a possibility. However, as you will be paying back all the money you owe through a DAS, you will not be asked to sell your home or other items of value at any point. A DAS is not considered a form of insolvency and so while it will be recorded on your credit file, the impact is less severe than it would be if you went down the route of sequestration.

With debts totalling more than £3,000, you are eligible for sequestration, however, this is a drastic step to take for a debt of this size and you would be advised to consider other less serious options first.

“I have between £5,000 – £20,000 of debt”

If you have more than £5,000 worth of debt, you may wish to consider a trust deed. Trust deeds are aimed at individuals who have no real chance of paying back all of the money they owe in a reasonable length of time. A trust deed is essentially a payment plan which is set to run for a specified period of time, typically four years, after which point any remaining debt will be written off. Your creditors will need to agree to you entering a trust deed as it often means accepting that they will not receive the full amount of money you owe them, however, a lot of creditors would rather receive something rather than nothing at all. You can read more about trust deeds and how they work here.

“I have more than £20,000 of debt”

With over £20,000 of debt you are able to enter into a DAS, trust deed, or sequestration. What is important is to ensure you choose the best option for yourself based on your individual circumstances. You may find a trust deed is not an option for large scale debts as the amount you are in a position to offer may be deemed too low by your creditors who must agree to the trust deed. In this instance you will have to consider either a DAS or sequestration. If you go for a DAS you should be confident in your ability to pay off the full amount you owe in a reasonable length of time. Depending on your level of debt and your disposable income this may or may not be possible.

If you have a low income and you can see no way of paying back the money you owe, you may need to consider sequestration. Although this is often seen as a last resort, it can actually be an extremely beneficial process for those individuals who are finding themselves unable to cope with their debt any longer. Sequestration will have a major impact on your credit file for the next six years during which time you will find it a challenge to obtain credit, however, it will give you a fresh start with your finances.

Before making any decisions, you should seek the advice of an expert. The team here at Scotland Debt Solutions have years of experience helping individuals work their way out of debt. We will take the time to understand your situation, talk you through all the options available, and suggest the best course of action for you. Contact us today and arrange an appointment with one of our advisers either at one of our offices or at your home.