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Step 4 (Scotland)Your non priority debts

Use this section to work out how to deal with your non-priority debts. These are debts where the creditor hasn’t got extra powers to make you pay (for example, they cannot take your home). They are often called non-priority debts because of this. Non-priority debts can usually be treated differently to priority debts.

Use this simple checklist to make sure you take the right steps to deal with your non-priority debts.

  • Do you need a safe bank account? Make sure that any money you receive (for example, earnings from your business, wages or benefits) goes into an account at a bank or building society that you don’t owe any money to. This means the bank or building society will not be able to take any of your income to pay your debt to them. This also applies to a business bank account.
  • Work out a business and household budget sheet Your budget is very important as it will help you decide what options you have for dealing with your debts. It will also help you to negotiate with your creditors, fill in any court forms, or ask for your debts to be written off.
  • Deal with court forms on time: If any of your creditors have issued a county court claim against you, you need to make sure you have replied to the court forms. This means filling in the forms the court sends you and returning them to the right place by the deadline. This will help you avoid any enforcement action, such as bailiffs.
  • Explain your situation to your creditors: Even if you haven’t decided how to deal with your non-priority debts, it’s a good idea to explain to your creditors in writing that you are struggling. Tell them you are taking advice and doing a budget. This may buy you some breathing space. Use our Hold action on your account sample letter.
  • Decide on a strategy: You may have more than one option for dealing with your non-priority debts. You need to make sure you understand what each option means, and the advantages and disadvantages, so you can be sure what you decide is right for you.

Less straightforward non-priority debts

There are some non-priority debts that are not straightforward to deal with. You should contact us for advice if you have debts such as:

  • arrears of business or household rent, phone, gas or electricity from a previous property or supplier;
  • hire purchase or conditional sale debts where the goods have gone back to the company;
  • equipment leases where the goods have gone back to the company;
  • debts with cheque-cashing services;
  • gambling and spread-betting debts; or
  • professional fees (solicitors’ and vets’ bills and so on).

What are the options for dealing with my non-priority debts?

There are different options for dealing with your non-priority debts, depending on your circumstances. We have outlined some of the main options below.

Which option is right for you will depend on things such as your income, how much debt you have, your assets, whether you own your home and the possible effect on your business. Your credit rating will normally be affected, whatever option you decide to take. This means it may be difficult for you to get credit in the future.  

What if I have some money left to pay my creditors?

Pro-rata offers of payment

You can work out offers of payment based on a ‘pro-rata distribution’ of your available income. This means you offer all your creditors a fair share of what you can afford to pay. Our budget tool, Your budget, will work out pro-rata offers of payment to your creditors for you. The calculation is also shown here. Alternatively, contact us for advice.

You also need to ask your creditors to freeze any interest and charges. You can write to your creditors, sending them a copy of Your budget, and ask them to agree to your offers of payment. Use our Pro-rata offers sample letter.

Pro-rata calculation

  • Step 1 – make a list of all your non-priority creditors and how much you owe each of them.
  • Step 2 – add up the total amount that you owe to your non-priority creditors.

You will then need to follow steps 3 and 4 for each non-priority debt.

  • Step 3 – multiply the amount you can afford to pay your non-priority creditors by the amount of debt that you owe an individual creditor.
  • Step 4 – then divide the figure worked out in ‘step 3’ by the total amount that you owe to all your non-priority creditors.

Example  pro-rata calculation

Pat and Eva have worked out that they can afford to pay their non-priority creditors £107 every month. This is their surplus for non-priority creditors.

In the first step, Pat and Eva list down their non-priority creditors and how much is owed to each one:

  • Newhome catalogue (£918)
  • Alphabet bank loan (£2,842)
  • Unicorn credit card (£3,467)

For the second step, they add up how much the non-priority debts come to in total. The total for these three debts is £7,227.

To calculate the pro-rata offer for each creditor, the third and fourth step can be done together. For each non-priority creditor, the surplus (which was £107) is multiplied by the amount owed to that creditor, and then divided by the total (which was £7,227).

  • Newhome catalogue. £107 x £918 ÷ £7,227 = £13.59. This can be rounded up to £14 per month.
  • Alphabet bank loan. £107 x £2,842 ÷ £7,227 = £42.08. This can be rounded down to £42 per month.
  • Unicorn credit card. £107 x £3,467 ÷ £7,227 = £51.33. This can be rounded down to £51 per month.

You may be able to do this through a debt payment plan under the Debt Arrangement Scheme or a free debt management plan.

The Debt Arrangement Scheme (DAS)

This is a Scottish Government scheme that gives you time to pay off your debts and gives you protection from most creditors. Sole traders, individuals and couples can apply for a debt payment programme through DAS. You usually need to have some money left over after your essential spending to be able to join a debt payment programme. From 11 December 2014 certain types of business can take part in a debt payment programme through DAS. The rules applying to businesses seeking a debt payment programme are different to those applying to a sole trader, an individual or a couple. See our Debt Arrangement Scheme fact sheet for more information.

Bank account

Once you have told the DAS Administrator that you intend to apply for a debt payment programme through DAS, your details will be put on the DAS Register. Your bank may restrict or suspend your account and you may need to apply for a basic bank account and basic business bank account.

Where a person gives consent to enable an application for a business DAS, their details will also be placed on the DAS Register, as well as the details of the business.

DAS for sole traders, individuals and couples

You join DAS through an approved money adviser to agree a debt payment programme. You will make one regular payment towards paying off your debts. The amount you could pay will be worked out by a calculation based on a ‘Common Financial Tool’. You will decide how much you offer to pay. As long as you keep to the agreed payments, no further interest, fees or charges are added to your debts from the date that you make your application. Diligence, or enforcement action to recover your debt, is stopped once your details are placed on the DAS Register and creditors cannot start a bankruptcy petition.

Your debt payment programme can include both priority debts (such as household rent, household secured loan and household mortgage, business debts, council tax, gas and electricity) and non-priority debts (such as credit cards, loans, overdrafts, business debts and so on). You can keep your household mortgage arrears, household secured loan arrears or your household rent arrears out of the debt payment programme if you want to. An excluded debt will be noted in the debt payment plan application.

From the date that you apply for a debt payment plan, interest and charges are frozen. They will be written off if you keep to the debt payment programme, but if the programme is cancelled (for example, because you have not kept up with the payments), interest and charges could start to apply again. Interest and charges that had been frozen could also be added back onto the debt. For more advice about DAS and the protection you can get, contact us for advice.

DAS for businesses

Business DAS is an extension to the existing scheme for individuals and couples. Businesses must apply through an insolvency practitioner, have their established place of business in Scotland, or be constituted or formed under Scots law, and at any time carrying on business in Scotland.

The kinds of debts that business DAS deals with and the protection from creditors are the same as a DAS for individuals or couples. Your debt payment programme can include both priority business debts (such as gas and electricity) and non-priority business debts (such as credit cards, loans, overdrafts and so on). You usually need to have some money left over after your essential expenditure to be able to join a debt payment programme. The rules about when interest and charges are frozen and written off are also the same. The amount you will have to pay will be worked out according to a ‘Common Financial Tool’. However, to take part in a debt payment programme under DAS as a business you have to meet extra rules about:

The type of business and consent

The following types of business can apply for a business DAS:

  • a partnership;
  • a limited partnership within the meaning of the Limited Partnerships Act 1907;
  • a corporate body other than a company registered under the Companies Act 2006,
  • a trust; and
  • an unincorporated body of persons (for example, a football club).

You must apply for a business DAS through an insolvency practitioner. If you are not sure whether your partnership comes under the 'Limited Partnerships Act 1907', or whether your company is a 'company registered under the Companies Act 2006', ask your insolvency practitioner to tell you.

Consent requirements are different for each type of business.

  • Partnership: each partner must consent.
  • Limited partnership: every general partner (and any limited partner who at any time has taken part in the management of the firm) must consent.
  • Trust: the majority of the trustees.
  • Corporate body (other than a company registered under the Companies Act 2006) or an unincorporated body: a person authorised to act on behalf of the body must consent.

Application and declaration of viability

Your insolvency practitioner will charge a fee. They will need to provide a declaration of viability stating that the business:

  • can reasonably be expected to complete the debt payment programme;
  • will be able to pay the money required within 5 years; and
  • that the business continues to trade (where trading), or (if not trading) is otherwise operating in the purpose for which it was made (for example, a football club or a trust).

Assets

The business will need to inform their insolvency practitioner of all the assets it owns within 12 months of the DAS being approved.  It will not be able to sell any non-trading assets (such as tools of the trade) while the debt payment programme is in progress, unless it is for the benefit of creditors and with prior approval from the insolvency practitioner. 

Composition and payment holiday

  • In a business DAS you cannot ask your creditors to accept a composition (where you pay a proportion of each debt rather than the full amount).
  • The option of a payment holiday in a business DAS, through a variation of the terms, may be possible. Debts included in a business DAS debt payment programme must be repaid within a five-year period.
  • the type of business;
  • who can consent to take part;
  • how you apply;
  • the viability of the business; and
  • assets.

Free debt-management plan (DMP)

In Scotland, a DAS debt payment programme is usually a much better option than a free debt-management plan because, for example, interest and charges automatically stop. You can also include priority and non-priority creditors and you are protected from creditors taking enforcement action.

Under a free debt-management plan you make one payment every month to a debt-management company to cover all your non-priority debts. The debt-management company will divide up your payment and send it to your creditors for you.

You will not have to negotiate directly with your creditors and the debt-management company will try to get your creditors to accept your offers and freeze the interest. This is different to a DAS debt payment programme, where creditors have to freeze interest and charges from the date you apply and have to accept the level of payment, once the debt payment programme has been approved.

If you would prefer a free debt-management plan, we may be able to help you set one up if:

  • you can afford to pay at least £5 to each of your debts; and
  • you can repay your debts within 10 years.

See our Debt management plans (Scotland) fact sheet for more information.

Bankruptcy

You may want to think about bankruptcy, even if you have some money left to pay your creditors. See our Bankruptcy fact sheet for more information.

Trust deeds

A trust deed is another option instead of bankruptcy. This is a formal arrangement with your creditors. You make an agreement, through an insolvency practitioner (called a ‘trustee’), to pay an agreed amount off your debts over a fixed period of at least four years. The rest of your debts are written off. The arrangement might also involve selling your assets, such as your home, so that the money raised can be paid into your trust deed. If you are self-employed it may mean you have to stop trading. If you are allowed to continue to trade, the trustee will have to approve any important decisions you make.

Trust deeds have to be set up by an insolvency practitioner. Their fees can be quite high. However, if your trust deed was set up on or after 28 November 2013, these fees will be taken from the monthly instalments you pay. A trust deed is a voluntary agreement with your creditors. If you have a protected trust deed, your creditors must keep to this agreement.

What are protected trust deeds?

Creditors can object to a trust deed going ahead by voting against it. If enough of your creditors either agree to your proposal or don’t reply (because this will be treated as agreement), your trust deed can become a ‘protected trust deed’. This is a special kind of trust deed and stops your creditors taking any more enforcement action against you, such as bankruptcy or sequestration (another name for bankruptcy). Legally, all of your creditors that are included in a protected trust deed must accept this arrangement, as long as you keep to the conditions.

A protected trust deed through Business Debtline

We may be able to refer you to an insolvency practitioner. Contact us for advice.

Applying for a trust deed is a serious step. You need to get independent advice and think carefully about whether it is the best step to take, particularly if you own your home or run a business. Remember that other options might be available, such as a DAS debt payment programme. Contact us for advice.

See our Trust deeds fact sheet for more information.

Can I offer to pay a lump sum to clear my debts?

If you have a lump sum that is less than the full balance you owe on your debts, you can ask your creditors to accept the payment and write off the rest of the debts. This is known as ‘an offer in full and final settlement’. This may be an option if you come into some money or have some savings you can use. Creditors do not have to accept an offer in full and final settlement but, if your circumstances are unlikely to improve, they may agree to your offer. If a creditor agrees to your offer, make sure they confirm this in writing. See our Full and final settlement offers fact sheet for more information.

Consolidating your debts into a new loan

This is where you add all your debts together and take out a new loan (a consolidation loan) to pay them off. You need to think very carefully before deciding to do this. Check out consolidation loans on the Money Advice Service website www.moneyadviceservice.org.uk

This may not be the best option for you, especially if your lender wants to secure the loan on your home. This means you could have your home repossessed if you do not keep up with the payments. Before agreeing to a consolidation loan, contact us for advice.

What if I have no money left to pay my creditors?

No payments or token payments

After paying your outgoings and making arrangements to pay your priority debts, there may be nothing left to pay other creditors. If you have nothing left, say so. Show your creditors by sending them Your budget and a letter to back this up. Ask your creditors to hold action until your circumstances improve. This is called asking for a ‘moratorium’. If you prefer, you could offer a token payment of £1 a month to each creditor instead. Use our Token payment or no offer of payment sample letter to help you.

Bankruptcy

If you owe a lot of money and you cannot see a way out of your debts, bankruptcy might be a good option for you. You should consider going bankrupt if you have no assets or you are prepared to lose your assets and possibly your business.

You must owe £10,000 or more before a creditor can make you bankrupt (although two or more creditors can club together and apply to make you bankrupt). Non-priority creditors are less likely to make you bankrupt than priority creditors because it costs them money in fees and costs.

They will probably not recover the debt and the costs of making you bankrupt unless you have assets that can be sold to pay your debts.

Once you are declared bankrupt, your creditors can usually take no further action against you. Going bankrupt can have important effects, particularly if you own your home and it is worth more than the mortgage you have left to pay. In this case, your home could be sold as an asset. Being made bankrupt could also affect your ability to carry on being self-employed. Bankruptcy may also affect you if you are a paid employee, if your contract of employment does not allow you to become bankrupt.

You can make yourself bankrupt if you meet certain criteria, but you may have to pay a fee. Your bankruptcy will normally last for six months or one year, depending upon how you went bankrupt. After this, debts that have not been paid are usually written off and you are discharged from the bankruptcy. You may still have to make monthly payments for a total of four years under the terms of your bankruptcy order. If a creditor has threatened to make you bankrupt, or you think it may be an option for you to consider, contact us for advice. See our Bankruptcy fact sheet for more information.

Partnerships

If you are a partner in a partnership you will need consider whether you should make your partnership bankrupt we well as making yourself personally bankrupt. There are different fees to pay and forms to complete if you are applying to make your partnership bankrupt. Contact us for advice. See our Business partnerships fact sheet for more information.

Will my creditors write off my debts?

If you have no money for creditors and no assets, creditors may agree to write off your debts. This is very rare but may be an option if your circumstances are extremely difficult due to illness, age or a death in the family. You will need to give your creditors evidence of your circumstances. Use our Write off the debt sample letter to help you.

Interest

Debts have two parts – the money borrowed and the interest. Interest is part of the charge for lending you the money. Debts have interest added in different ways.

  • Fixed-term loans. Interest is worked out at the beginning of your loan and included in your monthly payments. Sometimes, if you miss a payment, extra interest called ‘default interest’ is charged. Ask the creditor to freeze any default interest they are adding.
  • Revolving credit agreements. These cover credit cards, bank overdrafts and some loan agreements. Interest is added to your account daily or monthly. This means your debt grows unless the payments you make are higher than the interest being added. The company may also change the interest rates and add extra charges. Ask the creditor to freeze all the interest and charges.
  • Late-payment interest. In the case of business-to-business transactions (involving sole traders, partnerships or limited companies), the creditor can claim late-payment interest under the Late Payment of Commercial Debts (Interest) Act 1998. Contact us for advice.

To find out if interest is still being added to any of your debts, check your agreement.

What if a creditor refuses to freeze the interest?

Write to them again. If any of your other creditors have agreed to freeze the interest, point this out. See our Refused offers fact sheet for more information.

Still paying interest?

Your debt will continue to grow if your new monthly offer of payment to the creditor is less than the interest being added. Ask the creditor to stop charging interest. Ask for regular statements and check them. When a creditor accepts your offer, if they do not say they have frozen the interest, you should check this with them again. The creditor may also try to add administration and late-payment charges. Ask them not to charge these (‘waive’ them).

Copies of credit agreements and account statements

You usually have the right to ask for a copy of your credit agreement and an account statement. There are different laws which allow you to ask for different types of information. You have to pay a small fee when you make your request. If your lender does not provide the information you have asked for, they may be limited in the further action they can take against you. See our Credit agreements - getting information fact sheet for more information.

Claims management companies

There are lots of companies out there who say they can get your debts written off for you, or get compensation for you by claiming that your credit agreements cannot be enforced. Be very careful! Most of these firms charge you large up-front fees for each agreement they agree to check. However, there is no guarantee that they will be successful. In most cases, you will not get your money back. Before signing up with a claims management company, contact us for advice.

Dealing with your creditors

Check the name on the agreement

Only the person who signs an agreement is responsible for the debt. If you take out an agreement jointly with another person, you are each responsible for the whole debt and not just part of it. This is called 'joint and several liability'. Make sure the creditor knows that someone else is also responsible.

Check your credit agreement carefully. If you don’t understand the terms, or want to check that the agreement is in the correct format and that you are legally responsible for the debt, contact your local trading standards department or contact us for advice.

Partnerships and limited companies

In a partnership, business partners are liable for all partnership debts. This is called 'joint and several liability'.

If you are a director of a limited company, you will not be personally responsible for the company's debts unless you have signed a personal guarantee.

Under 16s

People under 16 cannot usually be held legally responsible for a contract they enter into. However, if the contract could be viewed as reasonable for their age and circumstances, the creditor could still try to take action against them. This is a complicated area of law. If you are under 16 and a creditor is threatening to take further action against you, contact us for advice.

Guarantors

Creditors may ask for a guarantor before agreeing to lend money. This means that if the person who has borrowed the money does not pay it back, the guarantor will be asked to pay. If you have a guarantor for one of your non-priority debts, or are a guarantor for someone else, contact us for advice.

What if a creditor refuses my offer?

Sometimes a creditor will refuse to accept the offer of payment you have made on Your budget. They may demand more than you can afford. Sometimes they may refuse to freeze the interest. If a creditor accepts your offer, double-check that they have frozen the interest if they do not state this in their letter. Don’t give up. You can usually persuade creditors to accept your offer of payment by using the following steps.

  • Start paying the amount you have offered anyway as a gesture of goodwill.
  • Contact us for advice on how to approach your creditors if they refuse your offer or refuse to freeze the interest.
  • Write to the creditor again and ask them to reconsider their decision. Tell them your offer is reasonable and is all you can afford.
  • If some of your creditors have accepted your offer of payment, and frozen the interest, write to the creditors who have refused and tell them this.
  • If a collector calls for your payment, you should not let them persuade you to pay more than the amount you have offered. Otherwise, you will not be able to afford the payments you have agreed with your other creditors, particularly for your priority debts.
  • Most creditors are members of a trade association and have agreed to a code of practice. The code usually says creditors should be sympathetic in cases of genuine difficulty.
  • Creditors may ask you to fill in their own budgeting form. Ask them to accept Your budget instead as this has all the information they need.

See our Refused offers fact sheet for more information.This includes sample letters you may find useful.

Contact us for advice if you feel a creditor is acting unreasonably. We can give you details of their trade association and advise you about the Financial Conduct Authority’s Consumer Credit sourcebook (CONC). CONC sets out rules and guidance which organisations must follow when collecting debt. We can also tell you about making a complaint to the Financial Ombudsman Service (FOS).

Don’t pay more than you can afford

The offers of payment in Your budget are fair to all your creditors and the most you can afford. If you allow one creditor to persuade you to pay more, you will not have enough for your outgoings and other creditors.

What if creditors ask for proof?

Sometimes, creditors ask for extra information or ‘proof’, such as wage slips or letters from other creditors. You may want to help with reasonable requests but, if the creditor wants proof of all your bills, point out this would not usually be asked for by the court. Contact us for advice.

Making payments – ways to pay

If you have made arrangements with your creditors, you will need a convenient way to pay. There are several options.

  • Open a basic bank account which offers free standing orders. Standing orders are regular payments you ask your bank or building society to make for you. There are basic bank accounts available for business banking and for personal banking. Contact us for advice.
  • Ask your creditors for a paying-in book. Make sure there are no fees to pay.
  • Some creditors accept payments through their website. Check with your lender.
  • Check whether you have a PayPoint or Payzone outlet at a local shop and if your creditors are part of a scheme which accepts payments in this way. For details of your nearest PayPoint, see www.paypoint.co.uk. For details of Payzone, see www.payzone.co.uk.
  • You may be able to pay at a creditor’s local office or retail outlet, such as a shop.
  • If you send cheques or postal orders, make sure you send your reference number, and a covering note.
  • Keep a record of all the payments you make.

Reviewing your offers of payment

Your creditors will often write to you after you’ve made an agreement, perhaps every three or six months, to see if you can now afford to pay more. If you can’t increase your payments, write back telling them this. Enclose a copy of Your budget.

What if I have a complaint about my credit agreement?

You have a right to complain to the Financial Ombudsman Service about how your lender or a debt collection agency has dealt with your account. You will have to follow your lender’s complaints procedure first, but your lender only has one opportunity to deal with your complaint before you can ask the ombudsman to look at it. To make a complaint to the ombudsman, you need to fill in their complaints form. You can either do this over the phone or download the form from their website.

You may also be able to ask the sheriff court to look at the relationship between you and your lender. This could lead to the court changing the terms of the agreement and even reducing the balance, or ordering your lender to pay the loan payments back to you. For more information about the unfair relationships test, contact us for advice. See our Complaining about your lender fact sheet for more information.

What if I already have a sheriff court decree?

If you already have a sheriff court decree, you need to decide whether or not to include any payments that the court has ordered, which should be shown in the household outgoings section of your household budget sheet, or whether to apply to the court to change the payments. Contact us for advice. See our Time to pay directions and orders fact sheet for more information.

What can I do if creditors harass me?

If you do not pay, your creditors are allowed to keep reminding you from time to time but they must not act illegally. If they threaten or harass you to try to make you pay, they may be committing an offence under the Consumer Protection from Unfair Trading Regulations 2008.

The Financial Conduct Authority (FCA) has issued the Consumer Credit sourcebook (CONC). It sets out rules and guidance that organisations must follow when collecting debt. If an organisation breaks these rules or guidelines, the FCA may question their fitness to be authorised to provide consumer credit. Contact us for advice.

Collection agencies

The creditor may pass or sell your debt to a collection agency. Don’t worry. A collection agency has no greater powers than the creditor. They are not sheriff officers and have no rights to come into your business or home. If you feel a collection agency is behaving unfairly, contact us for advice.

You should negotiate payments with the collection agency in the same way as your other creditors. Some collection agencies may try to charge you extra fees for collecting the debt from you. You may be able to complain about this. Contact us for advice. See our Harassment by creditors fact sheet for more information.

Loan sharks

A loan shark is someone who lends money but does not have a legal licence to do so. They often use violence and threats to make people pay and usually there is no written agreement. If you are worried about an illegal money lender, you can contact the Illegal Money Lending Team.

Interest and charges

If you are trying to make an arrangement to repay an overdraft, you should ask the bank or building society to stop the charges and interest, so that the amount you pay reduces the debt. If the staff at your local branch are not able to agree to this, contact the regional or head office of the bank or building society and ask them to agree to do so.

The Standards of Lending Practice - Business Customers

The Standards of Lending Practice – Business Customers sets out how banks, building societies, credit card providers, charge card providers and their agents should treat business account customers when they have financial difficulties. Under the standards, your lender should:

  • give you support and fair treatment;
  • not harass you or put you under undue pressure when discussing your problems;
  • consider any information that you provide when looking at solutions for the debt;
  • offer solutions that do not make your situation worse; and
  • support your plan to turnaround your business if they believe it has a good chance of working.

For more information, contact us for advice.

The Standards of Lending Practice - Personal Customers

The Standards of Lending Practice - Personal Customers sets out how banks, building societies and credit card providers and their agents should treat personal account customers when they have financial difficulties. Under the standards, your lender should:

  • give you support and fair treatment;
  • not harass you or put you under undue pressure when discussing your problems;
  • show that they have an understanding and an awareness of your issues;
  • help you to develop an affordable and appropriate plan to manage your situation;
  • give you time to assess your options and refer you for free debt advice when it is clear that this would help you to sort things out; and
  • consider freezing or reducing interest and charges.

For more information, contact us for advice.

Voluntary charges on your home

If you have a large overdraft or a personal or business loan, you may be asked to agree a voluntary legal charge on your home in return for reduced payments. This would mean that the debt would be secured on your home and you could then lose your home if you didn’t keep up the payments. Banks will sometimes ask you to agree to a legal charge, which means any future borrowing or overdraft you have with the bank is also secured on your home.

Before you agree to a voluntary charge

If you are asked to agree to a voluntary legal charge either by one of your creditors, or if your partner asks you to sign an agreement to a legal charge on your home, you must get legal advice first. Contact us for advice.

Consolidation loans

Beware of adverts in newspapers and on television offering loans to clear all your debts (often called ‘consolidation loans’). They can be very expensive and will put your home at risk. Contact us for advice.

Secured overdrafts

You may have a bank overdraft secured on your home. The interest charges can be high, with no fixed monthly instalment to pay. Sometimes the bank will secure all the money you owe them now, and all the money you may borrow from them in the future, on your home. This is called an ‘all monies charge’. This usually applies to business lending such as business loans and overdrafts. If the bank takes you to court, it may be difficult to suspend a possession order to pay off the overdraft or an all monies charge in instalments. If you have an overdraft secured on your home, contact us for advice.

If your bank is asking you to agree to secure an overdraft on your home or wants you to sign an all monies charge, contact us for advice.

Complaints

Banks should have a complaints procedure under the Standards of Lending Practice - Business Customers and the Standards of Lending Practice - Personal Customers and they should make the procedure public. If you have a complaint, you need to follow your bank’s complaints procedure. If you are not satisfied with how they have dealt with your complaint, you may be able to complain to the Financial Ombudsman Service. They can only deal with certain types of complaints. For information, contact the Financial Ombudsman Service directly. See our Complaining about your lender fact sheet for more information.

Debts with your bank – overdrafts, loans and credit cards

Many people use their current account with a bank or building society to pay in drawings from their business or wages and to pay household bills. This can cause problems if you have a number of debts and your current account becomes overdrawn.

With an overdraft, you pay interest and charges on the amount owed. If you have a loan with the bank or building society, the full monthly instalment will usually be taken from your current account too. This may mean that you do not then have enough money to pay priority debts such as your mortgage, rent, council tax, gas or electricity.

You need to be very careful in dealing with debts to your bank. Some banks or building societies will react by taking all the money in your account to clear the overdraft or loan. They can also try to do this if you have a credit card debt with your bank. This is called the ‘right of set-off’. Before negotiating a repayment arrangement with your bank, you should consider opening an account elsewhere to pay in drawings from your business or wages. Do this immediately if the bank or building society does not agree to your offer. If your bank tries to take money from your account in this way, contact us for advice.

Standards of Lending Practice 

The Lending Standards Board’s Standards of Lending Practice - Personal Customers and Standards of Lending Practice - Business Customers state that personal customers in financial difficulty “will receive appropriate support and fair treatment" so as "to help them deal with their debts in the most suitable way.”

Opening a bank account

You may have difficulty opening a business or personal bank account if you have missed payments to your creditors. However, opening a basic bank account should not normally involve a credit check. Basic bank accounts allow you to have wages or benefits paid in and take cash out. Some accounts let you have direct debits and standing orders.

You are not usually allowed chequebooks, cheque-guarantee cards or an overdraft. Shop around the high-street banks and building societies for the best deal or contact us for advice.

If you are on benefits and don’t want a basic bank account, you can choose a post office ‘card account’. You can have your benefits (including tax credits and pensions) paid into this account and can take money out at a post office counter. See our Safe bank accounts fact sheet for more information.

Basic bank accounts

Contact the Money Advice Service for a list of basic bank accounts on 0300 500 5000 or see www.moneyadviceservice.org.uk.

Does your bank charge you a fee for a ‘packaged’ account?

Some banks charge you a monthly or annual fee to have a particular account with them, because they offer extra benefits such as mobile phone insurance. Check if you are paying a fee for your account and think about whether the benefits you receive are really necessary, or if you could get them cheaper elsewhere.

Extra help

Some non-priority debts can be more difficult to deal with. They are:

  • charge cards;
  • payday loans;
  • catalogue debts;
  • personal debts to friends and family; and
  • non-priority business debts.

Charge cards

You may have a debt on a charge card such as American Express, where you have to pay the full balance off each month rather than in instalments as with a credit card. It can be more difficult to negotiate reduced offers of payment on charge cards as they are not ordinary credit agreements. You should still include them with your other non-priority debts. If your charge card company is threatening to take further action, contact us for advice.

Payday loans

A payday loan is a short-term loan, usually for a small amount of money. Many people use these loans to help them if they have run out of money before their next payday. The interest rates on these types of loans can be very high. Charges will also be added if you cannot pay the loan back on payday. This means that the debt can build up so you end up owing a lot more than you borrowed.

A payday loan is a non-priority debt, but it can be difficult to deal with as you may have given what is called a ‘continuous payment authority’ to the loan company. This means that you have given the loan company permission to take money from your bank account. You may not realise you have given this permission, but you can get a continuous payment authority stopped by telling the bank or the payday loan company. See our Payday loans fact sheet for more information.

Catalogue debts

Mail order catalogues offer a way of buying goods by post and spreading the payments over a period of, typically, 20 to 40 weeks. Orders for goods and the collection of payments are sometimes undertaken by a local part-time agent; often this is a friend, relative or neighbour.

You should treat catalogue debts as a non-priority debt in the same way as your other non-priority debts. Goods ordered from a catalogue belong to you and cannot be taken back if you do not pay. If you have a dispute with the company or an agent about how much you owe, contact us for advice.

liability of agents

If you act as an agent for the catalogue company and sell goods, or collect money for the company, you need to be careful. You should create a separate account for each of your customers. If you do not do this, then the catalogue company may hold you responsible for any payments missed by your customers.

As long as you set up separate accounts, you (as an agent) should not be held personally liable for your customers’ missed payments.

Personal debts to friends and family

You may owe money to friends and family. You should usually treat these debts the same as ordinary non-priority debts and make offers of payment in the same way.

You may be able to agree to make no payments until your circumstances improve, so you can pay off your other creditors faster. Sometimes, you may want to make higher payments on a personal debt because lending you the money has caused hardship to someone you know, or your relationship may suffer if you don’t. This can be difficult, as your other creditors may be unhappy if you are paying more on a personal debt than is strictly ‘fair’. You need to explain the reasons to your other creditors and point out, for example, that if you pay off the personal debt quickly, you will be able to pay more to everyone else.

Non-priority business debts

If you do not need to continue to trade with a particular supplier or service provider, you could treat any debts you have with these companies as non-priority debts. However, you may need to take care as some business suppliers are more likely to take court action, or make you bankrupt. If you are not sure whether to treat a business debt as a priority or a non-priority debt, contact us for advice.

What if my creditors take court action?

Many people are frightened of courts especially when they feel guilty because they owe money. But a civil court is not there to judge anyone as guilty or innocent, but to settle disputes about money owed, and how to repay it. The court is not there to protect the interests of creditors alone.

When your creditor makes a claim through the sheriff court, different procedures apply, depending on how much your debt is. The order the court makes is called a ‘decree’. It states what you owe and how you should repay it.

Once the creditor has got a decree, they may try to take further action against you. There are a number of ways they can try to make you pay. This is called ‘diligence’. It is important that you understand your rights and the types of diligence that the creditor can use.

Sole traders, partnerships and limited companies

  • If you are a sole trader, you can use the information below as a general guide if you don’t dispute the debt.
  • If you are in a partnership, the creditor should serve a copy of the claim form on each of the partners. You should discuss the case with your partners before deciding what to do and agree a common approach. A majority of partners needs to agree to offer payment or defend the action. If you can’t reach an agreement with the other partners, you need to get legal advice from a solicitor. If the partnership has been dissolved (ended), creditors can take court action against each partner individually. If the partnership has been dissolved, you can use the information below as a general guide if you don’t dispute the debt.
  • If you are a director of a limited company, court action should not be taken against you as an individual unless you signed a personal guarantee or have been made personally liable by the court following a formal liquidation of the company. If action is taken against the company, the directors need to agree how to reply. If you have been taken to court as an individual, even though the business is a limited company and you have not signed a personal guarantee, you should get advice from a solicitor immediately. If you are being taken to court as an individual and there is no dispute, use the following information and fact sheets as a general guide.

See our Sheriff court action fact sheet and Diligence fact sheet for more information.

Reducing payments on court orders

  • You can apply to reduce the payments you have been ordered to make if your circumstances change, or if you can’t afford the payments. You might need help from a money advice centre, local citizens advice bureau, law centre or legal aid solicitor. Contact us for advice.
  • If a creditor has already taken you to court, you can still apply to the court for a time to pay order if you have not previously broken an arrangement set up by the court. However, you need to wait until the creditor moves on to the next stages of recovering the debt, called ‘diligence’. If you are given a time to pay order, this will stop most types of diligence and, as long as you keep up the payments, you should not be asked to pay more of the debt.

What about the Debt Arrangement Scheme (DAS)?

If you have money left over after your essential outgoings, you may be able to apply for a DAS debt payment programme. This will also stop diligence.

If my creditors take court action, what are the advantages?

  • The court is more likely to let you pay an amount that you can afford. But it can only do this if you explain your income, outgoings and other debts on the reply form to the summons.
  • Often you won’t have to go to the court for a hearing. Much of the procedure is done through the post.

If my creditors take court action, what are the disadvantages?

  • Court costs and interest can be added on to your debt, although creditors cannot add on what they want. The amount of the court costs will depend on the amount of money you owe.
  • Details of sheriff court decrees are recorded by Trust Online and are available to credit reference agencies. This may make it difficult for you to get credit in the future.
  • If you pay off your decree within one month, you can ask to have the entry removed from the register.
  • If you do not pay the monthly amount which the court orders, or if the court orders you to pay the whole amount straightaway (called an ‘open decree’), the creditor may take further action against you. So make sure you pay your monthly payments, or apply for them to be reduced, if you cannot afford the first amount the court fixed.

How to get help with court fees

If you need to apply to the court, there may be a fee to pay. Check the Scottish Courts website for more information about court fees in Scotland.

Applying for time to pay

If your creditor has started court action, or has already got a decree, you may be able to apply to the sheriff court for time to pay the debt. If the court accepts your application for time to pay, and you keep making the payments the court orders, your creditor cannot take most types of further action against you. See our Time to pay directions and orders fact sheet for more information.

Time to pay offer not accepted?

If your creditor does not accept your time to pay offer, there will be a court hearing. This will look at how reasonable your offer was. This could mean that legal costs are added to your original debt.

Creditors who take action against you in the wrong country

If you live in Scotland and took your debt out there, a creditor should not try to take action against you in another country, for example England. If they try to do this, contact us for advice.

Partnerships and limited companies

  • If you are in a partnership, any court action should be taken against the partnership using its name, or in Court of Session cases with the names of the individual partners added.
  • You may not be able to use the time to pay direction procedure as you are not being taken to court as an individual. Try negotiating time to pay with the creditor direct. If they don’t accept your offer, you should ask a solicitor to represent you at the court hearing. Ask the creditor to consider continuing the case. This means a new hearing date will be set to give the partnership time to pay the debt back. Or, if the creditor insists on the decree being granted (that is, insists on a court order for payment being made), ask them to hold off using diligence to give you time to pay.
  • If you are a director and the company has been taken to court, it is important that you get legal advice from a solicitor before making any response to the court action. If you do not reply properly, it could result in the company being seen as trading while insolvent. This is an offence under the Insolvency Act. It is also a good idea to get legal advice if you are taken to court as an individual because you have signed a personal guarantee. This is because your home may be at risk if the creditor decides to use bankruptcy proceedings against you.

Can I get credit again?

There is no such thing as a ‘credit blacklist’ but if you do not pay your debts, you may find it difficult to get credit in the future.

When you apply for credit, most companies will consult a credit reference agency. They keep records of sheriff court decrees, bankruptcies, trust deeds and details about credit accounts. This information is kept on file for six years. It will show if you are behind with your payments. If you are in arrears or have a sheriff court decree, you may be refused credit.

If you are refused credit, you have a right to ask if the finance company has used a credit reference agency. They must give you the agency’s name and address.

The finance company should give you good reasons why they turned you down for credit. This includes telling you if they have used a credit-scoring system. To get a free copy of your credit report, you need to contact the credit reference agencies and fill in an application form. You can usually apply in writing, by phone or online.

The Information Commissioner’s Office publishes a useful guide to credit reference agencies called Credit Explained.

Credit-repair companies

You may have heard of companies that offer to clear your credit record if you pay a fee. These are known as credit-repair companies. Be careful. Many credit-repair companies promise to remove decrees when they cannot legally be removed.

Credit-repair companies must be authorised by the Financial Conduct Authority (FCA). Check if the company is authorised on the Financial Services Register before using their services. You can complain to the Financial Ombudsman Service about something a credit-repair company has done.

See our Credit reference agencies fact sheet for more information.

You are now at the end of Step 4. We hope you have been able to follow the steps easily and now feel better able to deal with your debts. There is a lot more help available if you need it. You can visit our Fact sheet library and our Sample letter library for more information and resources. Remember - you can always contact us for help, information and advice on 0800 197 6026.