Many more people than ever before are finding themselves caught out with mounting debts caused by unemployment within the family, cost of living outstripping increases in wages, pay freezes or overtime that was once assured and had been factored into everyday living costs is now a thing of the past.
For many, the reason they have found themselves in financial difficulty was unforeseeable and therefore to a large extent unavoidable. People handle the stress and pressure of debt in different ways, some will react immediately, seek advice and be proactive about their situation and, if the change in circumstances is only likely to be temporary then it may be that a period of moratorium is all that’s required in order to stabilize the situation. A period of moratorium means a request is made to the creditors explaining the change of circumstances and requesting token payments are made usually for a period of 6 months to give the debtor time to regain control of their finances.
For others however they struggle to deal with creditors resulting in avoidance of telephone calls and generally being non responsive to requests for payments they are unable to make. If a person’s financial position has became untenable with no prospect of this changing in the near future there are solutions to help.
If a person lives in Scotland there is a solution available called a trust deed or (once approved by creditors) a protected trust deed. This solution is not suitable for everyone and advice should be taken before entering a solution such as this. A trust deed will typically last 3yrs and has the benefit of collecting all your debts into one central pot. An insolvency practitioner’s services are required as this is a legally binding arrangement between yourself and your creditors.
Once the insolvency practitioner has completed an income and expenditure the IP will have a full understanding of the financial position .If there is disposable income after reasonable living expenses have been deducted then this sum of money would be included in a proposal to the creditors.
If the creditors accept the proposal then, 5 weeks after the meeting of the creditors and the IP the trust deed takes on a “protected” status. This means it has been accepted and is legally binding. At this point the IP is generally referred to as the trustee and it is there job to manage the case for the duration of the solution. Part of this process will involve full disclosure of all monies received during the length of the trust deed , in some instances this can mean paying more into the solution however it may also mean paying less dependent on circumstances.
Once the trust deed becomes protected the creditors are no longer allowed to contact the debtor directly which means all harassing telephone calls or countless demand letters must stop. If they continue then the trustee should be informed immediately as the creditors are acting illegally.
If you own a property with equity in the home a trust deed may not be appropriate however as dependant on the amount of equity you may have to sell the property in order to pay this money to your creditors.
It will also have a negative impact on your credit rating for at least 6 yrs and whilst a person is in the trust deed they are not permitted to seek further credit .The reality however is many people’s credit ratings are already badly damaged through defaults being put on the credit file by the time they have addressed the situation. In addition, the fact a person can once again answer the telephone knowing it will not be a creditor chasing money or get a good night’s sleep generally outweighs the negatives.
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