Family Debts And Money Owed To Friends
7th January 2013
This is Money recently reported that Britons owe their friends around £2.3billion. Often the money is lent to help fund social activities like nights out or a coffee, but sometimes loans extend beyond social generosity and can add up to hundreds or sometimes even thousands of pounds. The survey (carried out by Barclays) found that 15% of respondents had experienced arguments with their friends over money.
Family also often step in to help out financially. It’s not uncommon for parents or siblings to lend very large sums of cash to relatives that are struggling financially.
What happens if you have debts to your family or friends and your finances become so difficult that you enter into a Scottish trust deed? Most people see family or friend debts as being totally different to money owed to banks and credit card firms. The assumption is often that money owed to family or friends can be repaid while a protected trust deed deals with the other debts.
In fact money owed to family or friends has no preference over money owed to credit card providers or banks. If you sign a trust deed no allowance can be made for you to carry on repaying debts that you might owe to your friends or family. You’ll be expected to treat all of your creditors equally (no matter who they are). The same principles will also apply to other debt solutions such as debt arrangement schemes or sequestration (bankruptcy) for example.
What should you do if you owe money to your family or friends and consider that you need to take action on your debts? Prior to signing a trust deed it may be worthwhile consulting with any friends or family that you have debts with. Often they’ll be supportive and welcome the fact that you are dealing with a financial situation that is causing you such serious problems.
Can money owed to family or friends be included in your protected trust deed? The answer is that it can, though the lender may be asked for proof of the debt to justify their claim. If their claim is accepted by the trustee they stand to receive a dividend from the trust deed just like the other lenders will.
There is an exception to this rule. Your spouse or civil partner, if you owe them money, will be ranked below all other creditors in a trust deed. Unless your other creditors are fully repaid during your trust deed your spouse or civil partner will not be paid at all from the collected funds.
Having debts to family or friends doesn’t mean that you cannot use a Scottish trust deed to deal with serious debt problems. You will however need to be ready to be open and honest with those you owe money to about the circumstances. They’ll likely become affected financially in some way as well if you cannot keep up with repayments to them that you previously agreed to.
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