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Debt Management Plans in Scotland

Two Types of Scottish Debt Management

How Does A DMP Work?

 

A debt adviser reviews your income and expenditure to work out how much you can afford to pay towards your debts.

 

The adviser contacts your creditors, explains why you need a reduced monthly payment, and requests that they agree to it.

 

The adviser also asks your creditors to suspend interest (and any other charges) on your debts.

 

Your creditors are very likely to agree to a fair repayment plan and to suspend interest and charges on your debts. This is because consumer credit lenders are required by their regulator to treat customers in financial difficulty fairly.

 

This positive outcome isn’t 100% guaranteed unfortunately; you are still reliant upon the goodwill and support of each creditor.

 

Benefits of Debt Management

 

• Help dealing with your creditors

• Make a single payment every month

• Money set aside for bills and expenses

• Interest likely to be stopped

• The plan details can change if necessary

• You can end the plan at any time

• No public register

 

Drawbacks of Debt Management

 

• Damaged credit rating

• Creditor acceptance is not guaranteed

• Interest and charges may continue

• A restricted budget during your plan

• No debt gets written-off

• May need to open a new bank account

 

How Long Does A Debt Management Plan Last?

 

Debt repayment plans don’t run for a fixed period of time. You’ll continue making payment until your debts have been repaid in full.

 

If your debt total is modest, or if you can repay a significant amount every month, the repayment term may be relatively short.

 

If any of the following factors apply your DMP could be a long-term plan:

 

• Your debts are large

• You can’t afford to repay much each month

• One (or more) creditor continues to charge interest

 

In any of the above factors apply to you, a debt solution that includes debt write-off might be more suitable. The debt write-off options in Scotland are protected trust deeds or bankruptcy (sequestration).

 

Are Interest and Charges Frozen?

 

Creditors often suspend interest and charges when made aware that you’re in financial difficulty.

 

Consumer credit lenders want to demonstrate they have treated you fairly, in part because their regulator expects them to do so.

 

Consumer credit includes borrowing types like credit cards, store cards, bank loans, credit union loans, bank account overdrafts, and catalogue accounts. The requirement to treat customers fairly continues to apply if a debt gets passed to a debt collection agency.

 

The regulatory pressure to support and help customers in financial difficulty has been significantly magnified by the Covid-19 financial crisis.

 

Non consumer credit lenders may be less likely to apply interest in the first place. This could apply to arrears on household bills or to trade debts.

 

A debt management plan does not guarantee interest and charges will stop. Each creditor makes a separate decision and, even if they do agree to stop charging interest, this may not occur immediately.

 

Do Creditors Accept Debt Management Plans?

 

Creditors do tend to accept fair debt management plans if they agree that you’re in financial difficulty.

 

Accepting a reduced payment demonstrates that they’re supporting you, as their regulator expects them to.

 

Acceptance isn’t 100% guaranteed and creditors retain the right to recover debt using legal recovery methods.

 

Legal action is relatively unlikely for consumer credit and other regulated debt (like utility bills). It’s perhaps more likely for unregulated debts like HMRC, council tax, and trade creditors.

 

Can You Enter a Joint DMP?

 

It is possible and common to enter a joint debt management plan.

 

It is also possible to enter a joint Debt Arrangement Scheme with your partner or spouse.

 

You cannot submit a joint application for a Scottish trust deed or bankruptcy, though individual plans can be coordinated for couples.

 

Can You Switch Out of Debt Management?

 

You can switch out of a debt management plan at any time and without financial penalty.

 

If you identify a better way to deal with your debts you can simply cancel the plan and enter a different type of debt solution.

 

Will It Affect My Credit Rating?

 

A DMP will affect your credit rating in a negative way.

 

It’s initially less damaging to your credit rating than entering a personal insolvency procedure like a protected trust deed or bankruptcy.

 

If your debt management plan runs for a long period of time it could result in a longer-term negative impact on your credit report.

 

You will have the opportunity to repair your credit rating once your debts are repaid.

 

Are Debt Management Plans Regulated?

 

This service is regulated by the Financial Conduct Authority. Only FCA authorised and regulated firms can deliver the service.

 

You can check whether a debt advisory firm is authorised by the FCA to provide this service here.

 

You have access to the Financial Ombudsman Service in the event of a dispute.

 

Is Your Money Safe?

 

Debt management payments should be covered by the FSCS.

 

If you make payment to an authorised debt management firm that fails, your money should be protected.

 

What Fees Are Payable?

 

You have a choice between commercial providers and free debt management advice.

 

Commercial providers of debt management services charge you a fee that is agreed before you start your plan. Information about our commercial DMP partner (Bright Oak) fees can be found here for example.

 

Free-to-client debt management plan services are also available. You can contact the Money Advice Service to be connected with free debt management advice services.

 

You will not pay a fee if you use the Debt Arrangement Scheme to manage your debts.

 

Is There a Public Record of Debt Management Plans?

 

Informal debt management plans are not recorded in any public register, which could be important for personal or professional reasons.

 

Trust deeds, bankruptcy, and DAS cases are all recorded on public registers.

 

Debt Management as a Short-Term Measure

 

You may have a temporary financial problem, perhaps while expecting an increase in your income or while awaiting the receipt of a lump sum.

 

Debt management could help to manage your creditors in the short-term and you’ll be free to leave the plan whenever you’re ready to.

 

Are you temporarily prevented from starting a Scottish trust deed due to recent gambling activity? A DMP could be used an interim measure to manage your debts.

 

You could instead take advantage of the Scottish Government’s emergency Covid-19 legislation that has temporarily extended the protection provided by a moratorium to six months.

 

Leaving a Debt Out of a Debt Management Plan

 

You cannot leave debts out of formal debt solutions like trust deeds, DAS, or bankruptcy.

 

Informal debt management may be more flexible if the provider accepts the exclusion of a debt is clearly in your best interests.

 

The provider also needs to assess whether the exclusion of a debt will negatively affect support from your other creditors.

 

Requests for debt exclusions aimed at protecting personal relationships often apply to guarantor loans, to joint debts, or to money owed to family or friends.

 

Can I Operate My Own Debt Management Plan?

 

You don’t have to use a professional service to manage your debts.

 

It’s possible to contact your own creditors and negotiate direct arrangements with them.

 

Be ready to discuss your income, expenditure, assets, and other debts with the creditor representatives.

 

Alternative Debt Solutions

 

There are three potential alternatives to a DMP or DAS in Scotland.

 

1. Protected Trust Deed

 

This debt solution typically includes a repayment term of four years with any unpaid debt written off when you complete the plan. This may be a faster way to become debt-free.

 

Your assets are taken into account, which may pose problems for homeowners with equity or owners of vehicles worth more than £3,000.

 

2. Bankruptcy

 

This debt solution typically includes a repayment term of four years, but this only applies if you can afford to make a payment. You’ll usually be discharged from bankruptcy after just one year.

 

Your assets are taken into account, but potentially less flexibly than under a protected trust deed.

 

3. Debt Consolidation Borrowing

 

You may be able to take out a new loan to clear your other debts. This may be effective if you can reduce your total monthly repayment to an amount you can afford.

 

You’ll be paying interest on the new debt consolidation loan, meaning that your previous debts could potentially have been cleared faster by using a DMP or DAS instead.

 

Getting Debt Management Advice

 

For advice about your debt management program options please contact us.

 

We’ll ask about your financial situation then recommend debt solutions and explain their benefits and drawbacks.

 

All debt advice is confidential and provided by qualified debt experts.

 

 

Author: Andrew Graveson

Qualified Debt Adviser & Trust-Deed.co.uk Founder

 

Page last updated: 23/06/2020

 

 

 

 

(c) Bright Oak Limited. Company Number: 06774006. Data Protection Registration: Z1657982.

Telephone calls may be monitored or recorded. Authorised and regulated by the Financial Conduct Authority.

Trust-Deed.co.uk, Clyde Offices, 2nd Floor, 48 West George Street, Glasgow, G2 1BP. Tel: 0141 2490416.

 

 

 

(c) Bright Oak Limited. Company Number: 06774006. Data Protection Registration: Z1657982.

Telephone calls may be monitored or recorded. Authorised and regulated by the Financial Conduct Authority.

Trust-Deed.co.uk, Clyde Offices, 2nd Floor, 48 West George Street, Glasgow, G2 1BP. Tel: 0141 2490416.