Money Advice Direct Scotland Debt Support Team

Having problems meeting your debts?

Many people have problems meeting their debts.

Try not to worry - you do not have to deal with it on your own.

This section is designed to help you to work out what you can do about your debts, what options you may have, and where you can go if you want to talk to someone about your debts.

This section however, is not a detailed statement of the law.

What if you can't keep up repayments?

If you are worried because you owe money and can't keep up your payments - what should you do?

The first thing to remember - you are not alone. You can get expert advice.
It may be the case that you have only one or a few debts that you have trouble repaying.

Or you may owe money to many different people or companies. It is important that you think about everyone you owe money to.

Your debts might include credit cards, catalogues, rent/ mortgage arrears, council tax arrears, bank loans, etc.

Reasons for getting into debt

There are lots of reasons why people find it hard to meet their debts. It could be because of an unexpected change in circumstances or an unplanned for increase in your outgoings because of:

• Illness
• Onset of a disability
• Unemployment
• Bereavement
• A new baby in the family
• Or you may have borrowed too much.

It is important to understand the reasons why you are in debt, but it is more important for you to understand how to help yourself, or get a money adviser to help you and work through your problems with you.

back to top

Why it is important to take action NOW

It is always better to deal with your debt problems at an early stage, as the longer you wait the worse things will become. Early action on your part can mean fewer problems for you to deal with in the future.

If you go to an adviser they will look at all your debts. They will help you decide whether you are able to make any payments to your creditors and, if so, which creditor should be paid first. They can also help you by negotiating with your creditors and can deal with emergencies such as:

• gas or electricity being disconnected
• your wages being arrested.

We will also look at how your income can be maximized. They may suggest you could try applying for state benefits. For example:

• income support
• tax credits
• council tax or housing benefits or rebates.

We will help you look at your overall debt situation, and help you cope better. They will not make your decisions for you, but will help you by giving advice and information, so that you make informed choices about your situation.

back to top

Dealing with debt - the choices...

The following are some of the choices you may have in order to deal with your debt.

• Debt Management Programme (DMP) - This programme allows you to pay off your debts over an extended period of time with agreement from your creditors.

You need to be aware of a couple of things when entering into a debt management programme. This is an informal arrangement with your creditors who can, at any time, decide they no longer wish to accept the payments you offer. But normally they will continue to accept payments as long as your circumstances don't change.

However, they will not always agree to freeze interest charges, and in some instances may also apply an administration charge if the account is not up to date.

• Debt Arrangement Scheme ( DAS) - This is a scheme which has been introduced to help and protect debtors who owe money to several creditors and who have surplus income from which payments can be made on a regular basis.

Under DAS, a single regular payment is made to an approved payments distributor. If you keep to the agreed payments, your creditors cannot carry out enforcement action against you or make you bankrupt.

You can get help with applying for DAS by approaching a money adviser. If you believe a Debt Payment Programme ( DPP) under DAS is right for you, your money adviser will ask your creditors to agree a DPP.

A DPP is an agreement that allows you to pay off your debts at a lower rate over a longer period of time.

The programme can be for any amount of money or for any length of time. The regular payments can be low, if necessary.

If creditors all consent or are deemed to consent (because they do not respond) the debt payment programme under DAS is approved automatically. Creditors will then be bound by this DPP as long as you stick to the payments.

If creditors do not agree, or object, then the DAS administrator or a sheriff will still approve the DPP if it is fair and reasonable.

If your circumstances change, the programme can be varied to take account of this so long as all creditors agree, or if the DAS administrator decides it is fair and reasonable.

DAS contact - Please phone the Accountant in Bankruptcy Helpline 0845 762 6171 for details of DAS.

Bankruptcy

In some cases bankruptcy is the option that you need to consider. Bankruptcy is a serious step which passes control of all your assets to your trustee. Bankruptcy carries severe legal consequences and may place long lasting restrictions on you.

• Trust Deeds - These are an alternative to bankruptcy, but still have serious legal consequences. There is no need to go to court, but all your assets will still be in the hands of your trustee. The legal consequences of a trust deed are usually thought to be less harsh than in full bankruptcy. A trust deed is only suitable if you have some assets that can be sold.

Bankruptcy, either through the courts or a protected trust deed, can lead to loss of your family home, savings and insurance policies.

You should never take a decision about either of these options without first seeking advice.

back to top

Had a default notice from creditors?

A default notice is usually the first step which creditors must take before they take you to court. In other words, a creditor must advise you in writing that you haven't paid your debt. You must also be given the opportunity to make payments to bring your account up to date. Some debts are treated differently, for example, council tax.

A default notice may be the first formal document you will get sent about the debt. It should say (across the top) that it is a default notice under the Consumer Credit Act 1974, and that you will be given time to make a payment to bring the account up to date. If you do so, the creditor can't take further action. However, if you are unable to make the payment, further action can be taken against you. If that is the case, try to see a money adviser who will look at all your debts.

Depending on the level of the debt (if under £25,000) you may also be able to apply to the court for a Time Order to give you longer to pay your debt. A money adviser will likely be able to help you make an application, and will include your income and outgoings as part of the application which, in turn, will enable the sheriff to make an assessment of your ability to repay the debt.

If you do nothing, the creditor is likely to raise a court action against you, and, depending on the amount of your debt, you will have to repay the debt you owe with added interest and normally be liable for the creditor's expenses.

Remember: unless you tell your creditors you are having difficulties, they won't know, and they will be unable to assist you. If you do seek advice at the very earliest opportunity, you will have a better chance of sorting out your debt problems.

Did you know?

• You can't be sent to prison for non-payment of debts, such as credit cards, bank loans, and council tax. You can only be sent to prison for non-payment in very limited cases, for example if you deliberately refuse to pay aliment (money for the support of an individual or children).
• Creditors (with a few exceptions) must send you a default notice to give you a chance to pay your debt.

back to top

Being taken to court ?

If you have not paid your debts, then your creditor can take you to court. This can happen if you haven't paid the whole amount that you owe, or you haven't made the payments that are due.

How do I know if I am being taken to court?

You will know that court action is being taken if you receive a summons or an initial writ.

• If you owe £750 or less you will receive a small claims summons.
• If you owe more than £750 and up to £1,500 you will receive a summary cause summons.
• If you owe more than £1,500 then you will receive an initial writ.

The summons or initial writ should tell you who is taking you to court, how much they think you owe them and how they have worked out that amount. It should also tell you what court the action is being taken in and what they want the sheriff to do.

Information on summary cause and small claims has been recently updated and is available from the court on request at: www.scotcourts.gov.uk

What can the sheriff be asked to do?

In most cases the creditor taking you to court will ask the sheriff to order you to pay the amount you owe. If the money that you owe is rent or mortgage payments that you haven't paid on time, the sheriff might be asked to order you to leave your home. If the money that you owe is for a car or
something else that you have bought on credit or hire purchase, they might also ask the sheriff to order you to give the goods back.

What should I do if I am being taken to court?

It is very important that you get help and advice. You can also consult a solicitor. The solicitor may charge a fee but, if your circumstances allow, you may be able to get legal aid or the solicitor may provide an initial interview free of charge.

The papers that you will get with the summons or initial writ will ask you to reply to the court. There will be a date by which you have to do that. Do not ignore this date.

You will usually be able to do one of three things:

1. You can defend the claim if you don't agree that the money is due to the creditor taking you to court. This may be because you don't owe them anything, or because you think they have made a mistake in working out the amount that you owe. If you do this then there will be a hearing to allow the sheriff to find out more about the claim.
2. You can admit the claim if you agree the money is due to the creditor. If you admit the claim then normally the sheriff will grant an order requiring you to pay the whole amount which is owed usually with interest, or to give back something which you have bought on credit or hire purchase, or to leave your home. You will usually also have to pay the creditor's expenses.
3. You can admit the claim but ask for time to pay if you agree the money due to the creditor. You should get a form with the summons or initial writ that you must fill in if you want time to pay. You must say how much you are able to pay and whether you want to make payments weekly, fortnightly or monthly or some other way.

Your creditor can choose to accept or reject your offer under option 3. If it is accepted then the sheriff will order you to make the payments you have offered. If it is rejected then there will be a hearing and you can attend this to explain to the sheriff why you need time to pay. Again you will usually have to pay interest and the creditor's expenses. It is up to you to find out from the court if your offer has been accepted or rejected.

You should get help and advice particularly if you are not sure how to answer the summons or initial writ.

Did you know?

• You can't be taken to court unless a summons or an initial writ has been sent to you in the post or delivered to you personally.
• An action for payment of money is not a criminal charge and doesn't give you a criminal record unless it relates to non-payment of fines imposed by a court.
• If you want to defend the claim you don't need to have a lawyer and you can appear at the court hearing yourself. Some courts have special advisers to help people who do choose to go to court without a lawyer.

back to top

Council Tax Debt/Water Charges and Other Local Government Debts

Council tax is a tax collected by local authorities to enable them to provide services for their community. Charges owed to Scottish Water for water and sewerage are collected by local authorities in a similar way.

It is very important to remember that if you fall into arrears for a previous year's council tax, and water, you will have to pay back arrears as well as all of the new year's council tax.

You will have been sent an annual bill explaining what you are due to pay the council. Some councils have set up schemes that enable you to make your payments by instalments, by direct debit, or by making payments at a Paypoint terminal. If you do not make the payments on time the council will write to you and give you the opportunity to bring your payments up to date.
If you miss a payment you will be sent a notice, giving you seven days to bring the account up to date.

If you don't pay before seven days are up you lose any right to pay by instalments, and the whole sum for the year becomes due. You will have a further seven days, to make the full payment. If it isn't paid then the council can apply to the sheriff for a summary warrant. This includes a surcharge of 10% on top of the amount of the arrears. You are not entitled to ask the sheriff to grant you time to pay your debt.

If you are in debt to your local council they will possibly pass the collection of your debt to a recovery agent, or to a sheriff officer, depending on whether a summary warrant has been granted.

Example:

Mr Jones has a bill for unpaid council tax of £1,000 payable over 10 months.

1 Apr	£100 due NOTHING PAID
1 May	£100 due NOTHING PAID
17 May	Reminder/Final notice - must pay in seven days
24 May	If nothing paid Mr Jones loses right to pay by instalments
31 May	£1,000 to be paid - if not paid a summary warrant can be obtained within a short space of time and Mr Jones's debt is now £1,100 to be paid in a lump sum!

A summary warrant is different from a warrant granted after a normal debt action. The council in seeking to collect and enforce council tax will have had to give you notice on a number of occasions.

If you do nothing like Mr Jones above in response to the final notice then the council will be able to go to the sheriff (after first giving notice) and ask for a summary warrant. This will then allow the council to enforce the debt.

The granting of a summary warrant is a very serious matter. The council will collect their debts through wage arrestments, bank arrestments or possible sale of your goods. Unlike other forms of diligence, you cannot at present apply to the court for time to pay your debt.

You can however, try to negotiate some settlement with the council or an agent acting on their behalf.

If the council has been granted a summary warrant for your debt you should take immediate action by:

• making an arrangement with the council for payment; or
• contacting a money adviser or a solicitor for advice.

Did you know?

• You cannot be sent to prison for non-payment of council tax.
• Most councils will try to negotiate a settlement. They would rather not take people to court. Even if you are taken to court, there is still an opportunity to try to pay your debt, at a rate you can afford.
• You (or someone else in your household) may be entitled to a reduction in your payments for council tax.
• A money adviser will be able to help you deal with your local council, and may be able to negotiate a settlement that you can afford.

back to top

What can happen to you if you don't pay your debts?

If you can't pay your debts your creditor can take you to court to try to get back the money that you owe them. What they can do will depend on how much money you owe, what kind of debt it is and your own personal circumstances.

Time to pay

In most cases you can ask the court for time to pay, even after the court has granted a decree for the debt and diligence has started.

You can apply for time to pay a single debt before the court grants a decree by offering to pay by instalments or as a lump sum. If your offer is accepted, you will start to pay your creditor under the terms set out in a Time to Pay Decree.

You can also apply after the decree for time to pay a single debt, for example if your wages have been arrested. If accepted you will start to pay your creditor under the terms set out in a Time to Pay Order.

In both cases the sheriff will look at your circumstances should your creditor be unwilling to accept your offer before deciding whether to grant the order. Once a Time to Pay has been granted diligences and bankruptcy are stopped.

To qualify for time to pay a single debt you must be an ordinary individual debtor and your debt must be less than £10,000. The type of debt is important. Broadly speaking time to pay is not allowed for maintenance or capital sum payments on divorce or for debts relating to central or local government taxes.

You can also apply for time to pay more than one debt. See the information about the Debt Arrangement Scheme.

Once time to pay has been approved, diligences and bankruptcy are stopped. You can get help with applying for Time to Pay by approaching a money adviser.

Remember that you can get help and advice if action is taken against you by a creditor. Some advice agencies can help represent you in court. You should check to see if your local advice centre offers this service.
Go to the inside back page for the leaflet which details local advice centre numbers.

back to top

When can money be taken from my wages, salary or bank account?

Earnings arrestment

If you are working, the money you owe can be taken from your wages or your salary by an earnings arrestment. But before this can happen your creditor will have taken you to court and got a court decree.

In most cases you will have been sent a charge for payment. This is a warning that unless you pay what you owe within 14 days they are going to take action to get the money that you owe them. After 14 days they can then use an earnings arrestment. Your employer may charge you a small amount for carrying out an earnings arrestment.

How does an earnings arrestment work?

Your creditor will send the earnings arrestment to your employer. Your employer must then make deductions from your wages or salary. You cannot ask or expect your employer not to do so. The deductions are made every pay day in the same way that tax is taken off your wages or salary. Your employer sends the money to the creditor who served the earnings arrestment.

Do I get a copy of the earnings arrestment?

Usually you will get a copy of the earnings arrestment. If not, you may ask your employer for a copy.

How much money can be taken out of my wages or salary?

There is a limit on how much money can be taken from your wages or salary. That limit depends on how much you earn and whether you are paid weekly or monthly or in some other way. The limit is fixed by law and your employer should have a note of how much may be taken from your wages or salary.

Remember that you can get help and advice, especially if you think the amount that is being taken from your earnings is wrong.

Bank arrestment

If you have money in a bank or building society account or with a credit union, the money you owe can be taken from your bank, building society or credit union account.

When can money be taken from my bank account?

Before this can happen your creditor will normally have taken you to court. In most cases they should also send you a charge for payment. This tells you that unless you pay what you owe within 14 days they are going to take action to get the money that you owe them. After 14 days they can then use a bank arrestment.

How does a bank arrestment work?

Your creditor sends the arrestment to your bank, building society or credit union. When the arrestment is served, the money, which you have in your account, is frozen and you cannot withdraw that money or use it to make other payments such as standing order or direct debit payments.
All the money in your account is frozen, even if that is more than the total amount which you owe.

When is the money taken out of my account?

Your creditor doesn't get the money that has been frozen right away. They have to go to court to force your bank or building society or credit union to release the money. The court will order your bank or building society or credit union to pay the amount that you actually owe. The court may also order you to pay the costs of doing this court action.

If you want to avoid paying the costs of this court action you can give permission to your bank or building society or credit union to release the amount that you owe.

Did you know?

• Your creditor can use an earnings arrestment and a bank arrestment at the same time. This could cause you severe difficulty and you can apply to the court for time to pay your debt.

A money adviser can help to explain how wages and bank arrestments work and can help to make sure that only the amount which should be deducted is taken by your creditor - go to the back page for helpline details.

Child support

If you do not pay child support payments which you have been ordered by a court to pay or which the Child Support Agency has asked you to pay then deductions can be made from your wages or salary to meet these payments.

Did you know?

• A creditor can use more than one method to try to get their money back.
• A creditor can't usually take action against you unless they have first taken you to court.
• Your employer can charge you a fee of 50p every time a deduction has to be made under an earnings arrestment.

back to top

Rent and Mortgage arrears

If you have fallen behind with your rent or mortgage payments (or with any repayments of a loan which is 'secured' on your home) then you should take action as soon as possible.

Falling behind with these sorts of payments can lead to repossession of your home or eviction by your landlord.

What action you should take if you have fallen behind will depend on a large number of factors including whether you have a mortgage or pay rent and what type of mortgage or lease you have. It will also depend on whether you have other debts that you need to repay.

If you have mortgage or rent arrears you should try to speak to a money adviser or solicitor as soon as possible. They will help you to find out what options you have and how to deal with your bank, building society or landlord.

Remember that there are laws protecting homeowners and tenants who fall behind with mortgage and rent payments. You should try to get expert advice from a money adviser or solicitor if you think action is being taken against you to repossess your home or evict you.

back to top

Attachment

If your creditor has not been able to get back the money you owe them, then they may be able to 'attach' your property (tangible assets) which you own. These attached assets can then be sold to pay your debts. Only in exceptional circumstances can property which is in your, or someone else's, home - be sold.

What is attachment?

Attachment is a new type of diligence (the name for the legal methods used for enforcing orders of Scottish civil courts) that became available from 31 December 2002.

Attachment can be used to try to recover payment from you by attaching articles of value owned by you but held outside the living area of your home - for instance in:

• your garage or;
• driveway or in;
• buildings used for business.

When can attachment be used to get back money I owe?

Before your creditor can go ahead with attachment he or she will normally have taken you to court to legally establish that you are liable to pay the debt. The creditor will, in most cases, serve you with a charge for payment that tells you that unless you pay what you owe within 14 days they are going to take action to get the money that you owe them.

If you have not paid up in 14 days an officer of court can enter any premises (other than your home) where your goods are kept and attach and value them. The sheriff officer must send a report of the valuation to the court. After that has been done your creditor may arrange for your goods to be auctioned to help repay your debt.

There are detailed rules about the kinds of goods that can be attached, when attachments can be carried out and how to stop goods being auctioned after they have been attached.

back to top

Exceptional Attachment Orders

An Exceptional Attachment Order (EAO) is a court order that allows the attachment of goods inside the home in exceptional circumstances. The sheriff will only grant an EAO if satisfied that the creditor has taken some steps to consider other options for recovering the debt.

When can an EAO be used?

Before this can happen the person who you owe money to will normally have taken you to court. You will be served with a charge for payment in most cases. After you receive the charge, and unless you pay what you owe within 14 days, your creditor can take action to get the money that you owe them.

After 14 days they can then apply to court for an EAO.
They then have to:

• prove to the sheriff that they tried to come to an agreement with you about how you can pay your debt
• show that they have a court decree or its equivalent that already proves the amount you owe them.

What is an Exceptional Attachment Order?

As has been said above, your creditor can apply for Attachment after making a reasonable attempt to get the money from you in other ways.

An Exceptional Attachment Order on the other hand, will be granted by the sheriff for goods in the home only when reasonable steps have taken place to find out more about your position to repay. The creditor must have made a reasonable attempt to get their money back using an earnings arrestment and a bank arrestment.

The creditor must satisfy the sheriff that:

• the creditor has made a reasonable attempt to negotiate settlement of the debt
• certain other types of diligence have been considered first
• there is reason to think that selling certain of your goods would be worthwhile in terms of reducing the amount of debt due.

The sheriff has to be satisfied, taking all the known facts into account, that you have non-essential assets in your home that could reasonably be sold to recover a significant part of the debt.

Where any of the above conditions are not satisfied, the order may not be granted. Even if the creditor can show all of these things the sheriff may decide still not to make an EAO.

You will have the opportunity to make a voluntary declaration to the court to explain your circumstances.

The sheriff can ask for a money adviser to visit you in your home. The purpose of this visit would be to give you money advice.

You may be directed to the debt arrangement scheme when it becomes available, or the creditor may have to think of some other solution to negotiate repayment or consider writing off the debt.

How does an EAO work?

If the sheriff does grant an EAO, then your creditor can make arrangements to auction items of your property to pay off your debt to them. An officer of court will come to your home to value and immediately remove the items which are to be auctioned.

What can be taken from my home?

An EAO only affects 'non-essential' goods. By law, many items cannot be removed from your home under an EAO. These include things like bedding, chairs, sofas, tables, laundry and kitchen equipment, telephones, televisions, computers and radios.

Remember that you can get help and advice about whether any item of property can be sold or redeemed under an EAO.

back to top

What to do to help yourself

Even although it may seem that there is little you can do to help yourself, in fact there is more than you probably think.

• First, don't panic.
• You can also consult a solicitor. The solicitor may charge a fee but, if your circumstances allow, you may be able to get legal aid or the solicitor may provide an initial interview free of charge.
• Thirdly, and most importantly, DON'T IGNORE the situation - it can only get worse. With help it should improve things for you in both the short and long term.

.