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Indecision Is The Enemy Of Debt Resolution

10th December 2012

The Proposal For A Protected Trust Deed Minimum Dividend

The Scottish Government proposes to change the rules about how trust deeds in Scotland operate. Notably, a minimum dividend applicable to protected trust deeds is supported. It is envisaged that this may be between 30p and 50p in the pound.

Informed observers have noted the impact that this will have upon access to this popular form of debt relief. Writing in The Firm, Alan McIntosh of Carrington Dean said that this will, “limit accessibility to a wealthy few and force thousands more each year to become bankrupt.”

The Government consultation on these matters incorporated gathering feedback from debt advisers, insolvency practitioners and creditors. No genuine attempt was made by the Scottish Government to measure or understand the views of people that have actual personal experience of serious debt.

The Trust-Deed.co.uk Survey

We commissioned independent research from Zero-credit (a co-operative that trades in research for personal finance) on this and other topics related to the Bankruptcy Bill. 309 Trust-Deed.co.uk site members and forum visitors took part in the survey between 26th November and 2nd December 2012. The survey was sponsored by Philip Gill & Co insolvency practitioners.

Of the respondents, 162 are currently in trust deeds and 91 have completed them. This survey group enables us to provide a truly unique insight into some of the possible consequences of aspects of the Scottish Government Bankruptcy Bill proposals where they relate to trust deeds.

The full survey results are still being analysed and will be released in due course. However, we were keen to bring some data on this single topic into the public domain as soon as possible to help inform debate.

How Would People React If Trust Deeds Weren’t Available?

All debt advisers and insolvency practitioners understand that people often wait for months (sometimes years) before tackling serious debt problems. During this period of indecision and delay they often incur further debts, their health may suffer, their performance at work can be affected and personal relationships can be put under great strain.

There are many reasons why these delays in seeking advice and solutions exist. However, nobody disputes that such delays do exist and that the consequences are negative.

We wanted to understand whether reducing personal choices about debt solutions would make it more or less likely that people would act decisively and promptly to deal with a debt problem in the future. What would people do if a minimum dividend put the option of a trust deed out of their financial reach?

We asked, “If a trust deed was not available to you, how would you act?”

The respondent could select any (or any combination of) the following responses:

  • I would declare bankrupt immediately.
  • I would use a Debt Arrangement Scheme immediately.
  • I would take more time to decide how to deal with my debts.
  • I would carry on using credit.
  • I would wait for my creditors to make me bankrupt.
  • I’m not sure.
  • None of these.
  • Anything else (specified in comment box - results were coded by Zero-credit)

There were two defined immediate courses of debt resolution action (bankruptcy or DAS).

The remaining options indicate respondents would have probable risks of delays and indecision.

Some respondents indicated that they would proceed with bankruptcy or DAS immediately and also ticked one of the delay/indecision factors. This would indicate that the respondent would be at a possible risk of delay or indecision.

Indecision Is the Enemy Of Debt Resolution – The Best Case

The “Best Case” focusses only on those respondents that would have probable risks of delays or indecision if they had found that a protected trust deed was not available to them.

Amongst those currently in protected trust deeds:

  • Around one in four said they would use the Debt Arrangement Scheme immediately.

  • Around one in five said that they would become bankrupt immediately.

  • 37% indicated that dealing with their debts would be subject to delay if the Scottish trust deed option were not open to them.

These results were confirmed with a remarkably similar set of data from those respondents that have completed their trust deeds already:

Indecision Is The Enemy Of Debt Resolution – The Worst Case

Some people selected an immediate bankruptcy/DAS but also selected an option that might indicate a risk of delay or indecision. This enables us to produce data on how many people might possibly be delayed in taking action to deal with serious debts if choices were restricted in the future (by adding them to the probables).

Amongst those currently in trust deeds:

The data now suggests that more than half of those currently using trust deeds might possibly have delayed taking action on their debts had the protected trust deed option been denied to them.

Once again the data is remarkably similar for those that have completed trust deeds:

Why Does This Data Matter?

The Scottish Government have announced that the Bankruptcy Bill will create a system that is “fit for the 21st Century”. Sadly they did not see fit to engage with individuals that have experienced serious debt as part of building their vision. They have therefore failed to understand the implications of some of their proposals and the negative outcomes that will result from them.

Failing to consult with people that have experienced serious debt hardly seems like an effective process to develop sound debt resolution policy. Restricting the future choices of debtors appears to us to be a policy more fit for Victorian Britain than the 21st Century.

From the results to this single question in our survey we can confidently predict that the imposition of a minimum dividend hurdle for protected trust deeds will have negative unforeseen consequences:

  • Restricting choice will result (for many) in additional delays before taking advice and taking action on their debts.

  • Of those with debt and income characteristics currently conducive to selecting a trust deed, at best 37% and at worst 54% could have delayed taking advice or action had a protected trust deed not been available to them.

  • This period of delay is typically accompanied by growing levels of debt. Creditors stand to lose huge additional sums of money as a result of this change if it takes place. Creditors will also often have to wait longer to receive any kind of a return at all.

  • The Scottish Government hopes that creditor returns might be boosted by more people selecting the Debt Arrangement Scheme. However we can see from the survey results that almost as many people would immediately proceed with bankruptcy. This outcome would typically produce a worse outcome for creditors than a protected trust deed.

  • Such periods of delay are also often accompanied by negative health, relationship and workplace outcomes. The cost to the public purse as a result of these issues is likely to be very substantial.
The Remainder Of The Trust-Deed.co.uk Survey

The survey investigated the opinions and feelings of our members and visitors on a wide range of other proposals connected to the proposed Bankruptcy Bill.
The entire set of results will be released as soon as they have been fully analysed.

If you’d like to discuss the survey with us please contact Andrew on 0141 249 0416.

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