When you enter a personal insolvency process such as sequestration (Scottish bankruptcy) or a Trust Deed, you may be concerned about what happens if you’re ill and unable to work for a period of time.
It’s reassuring to know that formal insolvency arrangements cater for times like this, when circumstances are out of your control, but threaten to interrupt your repayment arrangements due to a drop in income.
Keeping up repayments in a formal agreement is crucial in rebuilding your financial life after insolvency, so how might an illness affect the situation?
If you have sufficient disposable income when you’re sequestrated, you’ll be required to repay a specified monthly sum to your creditors for up to 48 months. This is in addition to handing over control of your assets to the trustee.
Trust Deed repayments are also set at the start of the arrangement, and must be continued each month until the Trust Deed ends – usually after a period of four years.
Sequestration generally lasts between six months and a year in Scotland, and the duration of a Trust Deed is generally four years. It’s likely, therefore, that at some point during this time you’ll fall ill and be unable to work.
Unfortunately, long-term illness can strike at any time, but even if you’re only signed off work for a couple of weeks, it’s still a worrying situation with regard to your insolvency. Maybe your income is commission-based, or you aren’t entitled to sick pay from your employer or the state? In this case, you may be unable to make the agreed repayments due to a drop in income.
There are safeguards built-in to the repayment programmes that allow for this possibility. If your income goes down, this can be factored into the repayment schedule – it may be possible for your Trustee to reduce or even suspend repayments for a while.
If you become ill you need to inform your Trustee of the situation as soon as possible, as well as the likely length time that you’ll be signed off. This can be difficult to estimate at the start of an illness, but it can offer a longer-term view of the situation and help the trustee to decide on the next step.
If you don’t let your Trustee know the situation at work, any missed payments to your Trust Deed will constitute a breach, and could result in your sequestration.
Although a Trustee has the power to enforce sequestration for default on a Trust Deed, this generally only happens if the reason for non-payment cannot be proven, or the debtor fails to communicate their change in circumstances.
Your Trustee may be able to grant a payment break citing your illness to creditors as an extenuating circumstance. Breaks of up to three months don’t need to be advised to creditors, however, and the duration of the Trust Deed is simply extended to incorporate the payments at a later date.
If you need a longer repayment break because of your illness, the trustee will need to refer to your creditors, and the amounts/duration of repayments may be adjusted. It’s part of their role as Trustee to deal with situations like this, and they should be able to secure the agreement of your creditors given the circumstances you are in.
Being signed off work during a sequestration or a Trust Deed is worrying. If you’re concerned about what will happen, we can put your mind at rest by offering professional insight and advice.
We work from five offices around Scotland – call one of our experts at Scotland Debt Solutions to arrange a same-day appointment to discuss your situation.
The Register of Insolvencies is a public register that documents Trust Deeds until five years after the discharge date and includes personal details.
Joint Trust Deeds don’t exist, however, if you want to run a Trust Deed that encompasses debts as a couple, this will be two individual Trust Deeds.
Our Scottish based team can help advise you on your debt problems.