Avoid debt management rip-offs – trust deed news

6th June 2011

We have previously written, in our Trust Deed News section about the problem of some debt management providers acting in an unorthodox and risky manner. When administering debt management plans providers are required, under Office of Fair Trading (OFT) guidance, to distribute creditor payments no more than five business days following receipt of cleared funds from their clients.

Trust deed news has recently become aware of a relatively small number of debt management providers offering an alternative method of service. When receiving client payments they may make small token payments to creditors, deduct their fees, and save the remainder. The idea is that a pot of money will develop which can later be used to try to negotiate reduced-sum settlements with the creditors.

A BBC investigation has now uncovered further evidence of these practices and suggests that as many as ten thousand debt management clients could be at risk. They have published the details of companies which have gone bust with clients unlikely to ever see their savings again.

For any client this mode of operation is incredibly risky. Unlike a Scottish trust deed or the debt arrangement scheme, debt management plans do not confer legal protection upon the client. With creditors unhappy at receiving only small payments (sums less than the client is known to be able to afford) they are much more likely to take legal action. This creates a risk of wage arrestment and could even jeopardise a house where the client is a homeowner.

In a Scottish trust deed, client funds must be kept in an insured audited account. The debt arrangement scheme carefully administers client money with safeguards built-in. Good traditional debt management plan providers distribute cash quickly so it’s out of their account and is reducing the debt of their clients. These more modern and unorthodox debt management schemes create enormous risks to the savings of clients using their services. Trust deed news has heard from a number of individuals who have lost huge sums when companies suddenly cease trading.

Any Scottish resident in a debt management plan should quickly take a number of steps:

1. Contact their debt management provider to ask exactly how much of their payment is sent to creditors each month and how quickly this is done. If they are saving for you we suggest you demand the immediate return of your money and find a new source of help.
   
2. Review the debt arrangement scheme. Available only to residents of Scotland, this scheme may be lower-cost, will stop creditor interest, provides legal protection against creditors and might well result in a shorter repayment term.
   
3. Review the Scottish trust deed option. Many people may have decided against a Scottish trust deed in previous years due to equity in their homes. Prices have fallen considerably in recent years perhaps once again making a Scottish trust deed an attractive option.

The professionally qualified debt advisers at Trust-Deed.co.uk are able to assist visitors who wish to review whether the debt resolution they have chosen is the best one available to them. A team of debt experts is also on hand in our Scottish trust deed forum to answer your questions online.

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