Facing a Scottish trust deed? Here’s some pre-advice from the experts
If you are considering entering into a trust deed or sequestration (bankruptcy), you may be considering taking advice. In the interim, you may face continued financial pressures which are hard to deal with.
These pressures in a minority of cases lead to inappropriate financial behaviour. In this article we review examples of behaviour prior to commencing a Scottish trust deed or sequestration with the potential to land you in hot water.
Recently the Accountant in Bankruptcy (AiB) published a list of debtor behaviour which has resulted in debtors receiving a Bankruptcy Restriction Undertaking ‘BRU’ or Bankruptcy Restriction Order ‘BRO’. A BRU or BRO is imposed on a bankrupt individual where it is determined they have behaved dishonestly or recklessly. A BRO in Scotland can result in significant publicity which includes your personal details.
Once you realise that you are unable to pay your debts (and are close to sequestration or commencing a Scottish trust deed) you should not make any more significant credit commitments. The AiB provide a recent example where a debtor received a BRU as he agreed to a car loan knowing he was already in deep financial difficulty and had lost his job. Shortly after taking the loan he applied for bankruptcy. This resulted in a BRU lasting three years. Anyone considering commencing a Scottish trust deed should likewise avoid taking on new debts they know they will not be able to repay.
When facing a Scottish trust deed or sequestration, one of the most important steps to take initially is not to dispose of any of your assets once you realise you cannot repay your debts. The AiB (or a Trustee where there is a protected trust deed) could make an investigation into any assets you have sold or given away. The AiB report that one individual who gave her car away to her son prior to entering bankruptcy received a BRU for two years. If you have given away or sold any assets before entering into a Scottish trust deed or sequestration, be sure to inform the AiB on your sequestration forms, or inform your Scottish trust deed adviser if this is the case.
Paying a debt to a family member prior to bankruptcy or a trust deed can create an unfair preference over other creditors; all creditors should be treated equally in a bankruptcy or a trust deed (even if you owe friends and family money). A debtor who repaid her family with redundancy money she had was given a BRU for three years for preferring her family members over her other creditors.
Do not make any extravagant purchases prior to a bankruptcy or a Scottish trust deed. Although some may argue a holiday is no extravagance when you are facing unmanageable debts, it could well be classed as such. The AiB report that one debtor accepted a two year BRU when she went on a holiday which cost her £1,650. She did this regardless of the £43,000 of debt she had already built-up (shortly before her bankruptcy application was made).
You should be careful to be completely open and honest on your bankruptcy application (or during any information gathering exercise prior to a Scottish trust deed). A married couple failed to disclose a property they owned which had £50,000 of equity in it. They both received a BRU of four years each as a result.
Another individual, who went ahead with sequestration rather than a Scottish trust deed, accepted a BRU for three years after authorising his solicitor to transfer funds from a joint property sale to his wife (£115,000) so she could buy another property. He should have been entitled to half of that sum. This was an attempt to hide the money from the AiB as it was due to his sequestration, and therefore to help repay his creditors.
When completing forms for your sequestration (or Scottish trust deed), ensure you include all your savings and bank accounts. A two year BRU was accepted where an individual failed to disclose the existence of an additional bank account and an extra income stream on his bankruptcy forms.
Your financial transactions will be looked at prior to applying for your bankruptcy, and the same may be the case with a Scottish trust deed. If you have been gambling regularly then this can be another common reason for a BRU (although there is a difference between a flutter on the horses occasionally and a regular heavy gambler). One individual accepted a two year BRU as she gambled £690 prior to her sequestration (20% of her overall debt). The AiB reported this indicates she had taken undue risks with her money at a time when she should have been more cautious. In the case of a Scottish trust deed, individuals may be required to address any gambling problem before the Scottish trust deed can begin.
This is no exhaustive list of reasons why a Bankruptcy Restriction Undertaking or Order is issued; however, it does go to show how important it is to be honest and not be tempted to hide anything in a sequestration, or indeed a Scottish trust deed. If you now know you cannot pay your debts, it’s important to be conscious about how any further financial transactions you enter into might be perceived. The best step is to quickly seek professional debt or Scottish trust deed advice which helps you to deal with the problem.
If you’re facing a Scottish trust deed or bankruptcy be thoughtful about your actions in terms of new credit applications or use. If you’d like any further information about Scottish trust deeds or sequestration, please do not hesitate to call our advice line on 0800 043 7201 or post a question on our Scottish trust deed forum.
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