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When Should You Stop Paying Your Creditors

4th June 2013

If you plan to proceed with a protected trust deed in Scotland there will come a point at which you’ll need to stop making direct payments to your creditors. Instead you will be making a single monthly payment to your trust deeds provider. There can be confusion about the precise point at which this changeover should occur.

Indeed this very question arises commonly on our forum and also in the conversations that our advisers have with enquirers on an almost daily basis. In this article we explain some of the options, discuss the advantages and disadvantages of each, and offer a little advice on the subject based upon our own experience.

Sometimes people are encouraged to immediately stop making direct payments to their creditors on the very first debt advice call (or at the first meeting). This may occur prior to a full fact-finding exercise being undertaken, or prior to the individual being advised fully about all of the options that they have available to them.

In our view this is advice given in the interests of the adviser rather than their client. The hope seems to be that by encouraging you to cease paying your creditors at that point in time you will, in some way, become locked-in to the services of that adviser going forwards. In reality how can it be right to stop paying creditors before you know what your options even are, before you have had chance to weigh up your choices, or before you have made an informed final decision? You may even expose yourself to unwelcome creditor recovery action if subsequent delays in setting up a debt arrangement of some sort occur for any reason.

A qualified and ethical debt adviser, or insolvency professional, will want to fully understand your circumstances before offering any such advice. They’ll talk to you about your income, your expenditure, your debts and your assets. This will equip them to tell you whether you qualify for Scottish trust deeds, sequestration (bankruptcy) or the debt arrangement scheme.

You’ll then be able to weigh up these options and ask questions about them. This will assist you in making that informed final decision that you can feel really positive about. Only once you’ve made such an informed decision, following proper advice, is it time to start thinking about the timetable of events from there.

For example, if you hope to enter a protected trust deed there will be a number of issues to consider from a timing perspective. You’ll probably need to get a new bank account open. You may need to speak to your employer and service providers so that payments can be switched to this new account. You’ll also need to start making payment into the trust deed at some point in time in the future.

Payments to trust deeds in Scotland are based upon an affordability calculation. You will therefore not have enough spare money to pay your creditors directly and to pay the agreed sum into your new debt arrangement at the same time.

We suggest speaking to your adviser (that is setting up this process for you) to confirm a suitable date for your first trust deed payment. From this you can work backwards to establish when you’ll have to stop paying your creditors directly in order to be able to afford the trust deed payment and all of your other bills and expenses.   

Following this process will help you to ensure that your financial needs are met, that your creditors are treated with integrity, and that there is minimum delay in the establishment of the trust deed. Achieving these outcomes is an extremely important part of dealing with your debts in an orderly and effective manner.

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Wylie & Bisset Grant Thornton

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