Debt refers to something owed from one person to another, most commonly, money. It can also mean the amount of money owed. Loans, Credit Cards, Catalogues, Overdrafts, Mortgages and Car Finance are all examples of debt. Buy Now Pay Later (“BNPL”) is a type of debt which is becoming increasing popular.
Secured debt means the money owed is tied to a specific possession or asset, for example a house (mortgage / secured loan) or car (Hire Purchase / Personal Contract Purchase). If you cannot pay the creditor back, they can in certain circumstances take the agreed possession from you to attempt to recover their losses.
Unlike a secured debt, money owed via an unsecured debt is not secured against an asset, meaning the creditor owed money has no legal right to recover a specific possession if the money cannot be paid back. Typical examples of unsecured debts are personal loans, overdrafts, credit cards, catalogues, council tax arrears and utilities arrears.
Assets are things which are owned. When talking about debt, it generally means things that could potentially be sold to contribute towards that debt e.g., houses, cars, endowment policies etc.
A Trust Deed is a Scottish debt solution created by the Scottish government. In a trust deed, an individual makes affordable monthly payments towards their unsecured debts and once successfully completed, usually after 4 years, the remaining debt is written off. It is similar to an Individual Voluntary Arrangement (IVA) in England and Wales. Trust deeds can be protected or unprotected.
Unprotected Trust Deed
A trust deed is “unprotected” until a sufficient number of creditors have agreed to it and it is registered as a protected trust deed. Whilst unprotected, the creditors involved can continue to take legal action against the individual to recover the debt owed to them.
Protected Trust Deed
If enough of the creditors have accepted the trust deed, then it can be recorded on the Register of Insolvencies as a Protected Trust Deed (PTD). Once protected, the creditors cannot take any further action to recover the debt owed to them. Once a PTD is successfully completed, any remaining debt owed to the creditors is legally written off.
Debt Arrangement Scheme (DAS)
A Debt Arrangement Scheme is a Scottish debt solution created by the Scottish government for individuals or couples who both have debt. In a DAS, the unsecured debts are repaid over an extended timescale, with regular affordable monthly payments. Once a DAS is approved, the creditors in the DAS cannot take any legal action against the individual(s) to recover the debt owed to them. DAS does not affect assets, so gives the time and breathing space to repay debts without impacting upon property, for example.
Sequestration is the official name in Scotland for Bankruptcy. Read more about Sequestration.
Bankruptcy is a formal debt solution for dealing with unaffordable debt. An individual can apply for their own bankruptcy, or a creditor could apply to make an individual bankrupt. It is often thought to be the last resort option for dealing with unaffordable debt. Read more about Bankruptcy in Scotland.
Debt Management Plan (DMP)
A Debt Management Plan (DMP) is an informal alternative to the Debt Arrangement Scheme (DAS) without the legal protection which DAS provides. Debt Management Plans can be organised and managed by an individual, or third-party agencies can help too, however sometimes they will charge for doing so. Read more about the differences between Debt Management Plans and Debt Arrangement Schemes.
Individual Voluntary Agreement (IVA)
An IVA is a formal debt solution in England, Wales and Northern Ireland where an agreement is made between an individual and their creditors to repay a proportion of their debts over a period of time. It is similar to a Scottish Trust Deed, but typically lasts 5 years instead of 4.
A Decree is a formal order from a sheriff court saying that you must pay money to a creditor. In England and Wales, the equivalent is known as a County Court Judgement (CCJ).
Time to Pay Direction (TTPD)
If a creditor is trying to enforce a debt and has obtained a Decree, the individual can request the Sheriff Court issues a TTPD - which allows time to repay the debt at an agreed rate over an agreed timescale. The creditor is prevented from taking further action as long as the terms of the TTPD are maintained.
Charge for Payment
A Charge for Payment is a formal demand for a debt to be repaid in full within 14 days. Before issuing a Charge for Payment, a creditor needs to either have obtained a decree in a Scottish sheriff court or issued a summary warrant. The Charge for Payment will be delivered by a Sheriff Officer.
- The Charge for Payment will require you to repay your debt to the creditor in full, not just the missed repayments.
- You will have 14 days to repay the debt (you can apply for more time to pay using this form).
Expired Charge for Payment
A Charge for Payment becomes an Expired Charge for Payment when 14 days have passed without the debt being repaid.
Wage Arrestment is when a sheriff officer instructs an employer to divert some of an individual’s wages to repay their debt. Before instructing a wage arrestment, a creditor must first have arranged for a Charge for Payment to be served and 14 days have gone by without the required sum being paid.
Conjoined Arrestment Order
A Conjoined Arrestment Order is an order granted by the court where two or more debts are being enforced by earnings arrestment at the same time.
A Creditor is a person or organisation to whom someone has a financial obligation. For example, companies to whom money is owed.
Debtor is used to describe the person who owes money to a creditor.
Diligence is the technical term used to describe the difference steps a creditor can take to recover money they are owed after they have taken court action. An earnings arrestment, for example, where money is deducted from an individual’s salary is a form of diligence.
There are Sheriff Courts in most districts in Scotland. The sheriff court will deal with civil cases such as separation or divorce, personal injuries, enforcement of personal debts and award of bankruptcy when a creditor is applying to make a person bankrupt.
If someone wishes to apply for their bankruptcy, or indeed if a creditor wishes to make someone bankrupt in Scotland, they must first be able to demonstrate that the individual is “apparently insolvent”. Apparent insolvency is most commonly when:
- A creditor has obtained a decree in the sheriff court, then had a Charge for Payment served and 14 days have passed without the required payment being made.
- A local council or HMRC has a summary warrant against an individual and payment hasn’t been made within 14 days.
- A creditor has served a statutory demand telling an individual to pay a debt owed within 21 days and the debt has not been paid, or the debtor has not sent a recorded delivery letter denying that the debt is owed.
An Insolvency Practitioner (IP) is a person who is authorised and licensed to act in relation to an insolvent individual, partnership or company. IPs are usually accountants or insolvency specialists.
A Trustee is a licensed insolvency practitioner who has been appointed to realise the estate of an individual for the benefit of their creditors. A Trustee can be appointed voluntarily by an individual signing a trust deed or upon the award of their application for bankruptcy in Scotland with the consent of the Trustee. A Trustee can also be appointed by the sheriff court when a creditor petitions for the individual’s bankruptcy.
Accountant in Bankruptcy (AiB)
The Accountant in Bankruptcy (AiB) is an executive agency of the Scottish Government which is responsible for administering the process of personal bankruptcy in Scotland and for recording corporate insolvencies.
Certificate for Sequestration
A Certificate for Sequestration is a document provided by an authorised money adviser, such as Cleanslate, which confirms it is their view that someone cannot pay their debts as they become due. If someone is not yet apparently insolvent, it will be necessary to obtain a certificate for sequestration before they can apply for their bankruptcy.
Debt Consolidation is the process of combining multiple smaller debts into one larger one. The goal is usually to reduce both the number of regular repayments to creditors as well as the total payable each month.
Full Administration Bankruptcy (FAB)
If someone is declared bankrupt in Scotland and does not meet the criteria for the Minimal Asset Process, they will go through the process of full administration bankruptcy. They will not be discharged until at least 12 months after being declared bankrupt, and their discharge is dependent upon whether they have co-operated with their Trustee. After being discharged, the individual must still:
- Continue to pay a debtor contribution order for 48 months where applicable.
- Comply with the Trustee’s request to confirm their financial circumstances every 6 months.
Minimal Asset Process (MAP)
MAP Bankruptcy is a shorter form of Bankruptcy designed for people who are unable to make any payment towards their debts and have assets of very limited value. To quality for MAP an indiviudal must have unsecured debts of less than £25,000, be assessed as either having no disposable income, or only have income which comes from state benefits, and not own any assets worth more than £1,000, with the exception of a car which is reasonably required and is worth less than £3,000. A Certificate for Sequestration which has been signed by an authorised money adviser will also be required.
Debtor Contribution Order (DCO)
A DCO describes the regular payments a bankrupt individual needs to make to their Trustee for up to 4 years. It is calculated based on their disposable income after having met day to day living costs. If the individual’s income only comes from state benefits, the DCO will be set at zero.
A money adviser is someone who can help explain the options available to address problem debt.
Money Helper brings together the support and service of three government-backed financial guidance providers: the Money Advice Service, the Pensions Advisory Service and Pension Wise. It can provide in depth guides to help improve finances as well as tools and calculators to help keep track and plan ahead for the future.
A Credit File contains history of an individual’s debts, how regularly they’ve paid them, and any court judgements related to their debts. Elements of a credit file are removed after 6 years.
A Credit Score is a score that credit reference agencies assign to a credit file based, in part, on how someone has managed their credit. The scores are created by the credit reference agencies based on their own metrics and don’t define whether a lender will lend to an individual. That decision is made by lenders on an individual basis, considering many factors.
Credit Reference Agency
A Credit Reference Agency is a company that securely holds data about people, such as credit applications, credit accounts and information on how those accounts have been maintained.
Dividends are the payments distributed by a Trustee to creditors during the administration of a personal insolvency solution (Protected Trust Deed or Bankruptcy in Scotland)
Register of Insolvencies
The Register of Insolvencies is a public database of everyone in Scotland that is currently or has recently been in a Protected Trust Deed or Bankruptcy. Entries on the ROI are removed one year after the Trustee has been discharged.
Continuing Money Adviser
A Continuing Money Adviser is someone who helps and advises an individual or couple throughout the entire duration of a debt payment programme under the Debt Arrangement Scheme. For example, if circumstances change and the individual(s) can no longer afford the agreed payments, the Continuing Money Adviser would help find a new affordable amount and negotiate this with your creditors.
Debt Relief Order (DRO)
A DRO is a debt solution in England, Wales, and Northern Ireland. It is shorter than bankruptcy and designed for people with debts less than £30,000, little to no spare income and who do not own their own home. It is like a MAP in Scotland but there are key differences.