Write-off Expand Requesting a write-off could be viewed as an option of last resort. It usually means that the client has no available income or assets, is not a homeowner and the debts are relatively small. It may also mean that the client is on low or benefit income and the circumstances are unlikely to change in the foreseeable future. A write-off means the creditor/s agree not to collect any further payments and remove the account from their records. A creditor’s agreement to write-off should always be confirmed in writing as this can be produced in the future should any disagreement arise. Most creditors will not readily agree to a write-off particularly if the debt is recent or large and the client may have to consider an alternative strategy (e.g. token payments).
Warrant to cite Expand The warrant to cite is the first order granted by the court authorising the petitioning creditor/s to cite the debtor to appear in court on the date stated to show cause why sequestration should not be awarded.
Unfair relationships Expand The Consumer Credit Act 2006 (Sections 140A to 140C) introduced the concept of an “Unfair relationship” between a borrower and a creditor. This enables a borrower to challenge a credit agreement in court on the grounds that the relationship between the lender and the borrower in connection with the agreement is unfair to the borrower. This provision is in addition to an enhanced ability for consumers to take disputes to the Financial Ombudsman Service (FOS). Unfairness is not defined and the test will cover all aspects of the creditor/debtor relationship both before and after an agreement is made, as well as the terms of the agreement. The unfair relationships test does not cover FCA regulated mortgages or hire agreements. If a court finds a relationship to be unfair to a debtor, it can: Order the creditor to repay money to the debtor Order the creditor to do or not do anything Order the creditor to reduce or discharge any amount payable by the debtor Order the creditor to return any property to the debtor Amend the terms of the agreement, for example by reducing the rate of interest. The borrower would need to raise the action in their local sheriff court and as there is no formal form they would have to use the Summary Application Procedure which does not allow for lay representation. An alternative would be for the borrower to ask the sheriff to consider if the agreement was unfair when the creditor raises an action.
Token payments Expand Some debtors are not comfortable asking creditors to write-off a debt completely as they wish to even make a small or token payment to the creditors. This type of offer is normally made when there is an unexpected drop in a debtor’s income but it is expected to be short term. Debtors could offer say £1 or £2 per month as a goodwill gesture and as an acknowledgement that they owe the debt but are unable to meet their commitment in the short term. There is no guarantee that creditors will accept token payments and it is only an option that may be considered. If the situation looks long term, it may be better to consider other options. (e.g. bankruptcy/write-off).
Time to pay orders Expand An application form for the TTPO (FORM 2) can be obtained from the local sheriff court. The debtor can either make application in writing or attend court personally (lay representatives are permitted), and they can offer payments by instalments or as a lump sum. The sheriff will then grant an interim order temporarily preventing the creditor from completing the diligence. The creditor then has fourteen days to object to the payment offer made by the debtor. If the creditor makes no objection to the TTPO, it will be granted in favour of the debtor. However, if there is an objection, the sheriff clerk will set a date for a hearing where the sheriff will decide the outcome. This is effectively another diligence stopper. (Lay representation is allowed). NOTE: Time to pay applications under The Simple Procedure are known as a 'Time to Pay Application' and the one form (Form 5A) is used throughout the process, before and after the sheriff's decision. The Ordinary Cause Procedure still uses two forms; one before and one after decree, as above.
Time to pay directions Expand An application form for the TTPD is included with the summons. The debtor can either make application in writing or attend court personally (lay representatives are permitted), and they can offer payments by instalments or as a lump sum. The creditor can reject the offer, and they must send a copy of the rejection minute to the debtor. The final decision will lie with the sheriff. The length of the proposed payment timescale will be a major factor in the decision. If the offer is accepted, the creditor can take no further action (this is effectively a diligence stopper). If a debtor misses two payments, on the date the third payment becomes due, the time to pay direction collapses and the creditor can then begin to enforce payment.
Time orders Expand If the debtor is finding it difficult to meet the scheduled payments in a “regulated” consumer credit agreement, Section 129 of the Consumer Credit Act 1974 allows for the application of a Time Order. This is a way of asking the court to allow more time to make payments under the agreement. Time orders can be applied for before, during and after court action but the simplest way to apply is to use the form that is contained in the summons. An application for a time order cannot be granted if a Time to Pay Direction (TTPD) or Order has already been granted (in terms of the Debtors (Scotland) Act 1987) in relation to the same debt. There have been very few time orders awarded in Scotland and if the debt is not secured or hire purchase it may be better to use a TTPD.
Support for mortgage interest (SMI) Expand From 6 April 2018, Support for Mortgage Interest (SMI) will be paid as a loan - which must be repaid when the claimant dies or sells their home. Before this date, SMI was paid as a benefit, which claimants did not have to repay. The amount that a claimaint may have already received as a benefit does not need to be repaid.
Summary warrant Expand The summary warrant procedure is a quick means for certain public creditors to pursue the amounts they are owed. Used mainly by local authorities and Her Majesty's Revenue and Customs, this process involves an application to court in respect of debts due by several different debtors. No hearing is held, so in the initial stages of this procedure the debtor is totally excluded. Until commencement of Part 12 of the Bankruptcy and Diligence etc. (Scotland) Act 2007 public creditors were not required to serve a charge for payment prior to executing diligence following a summary warrant. Applications for formal time to pay are competent in respect of debts due to local authorities. (Debtors are still unable to apply for time to pay in respect of debts due to HMRC). Creditors using the summary warrant process must serve a charge for payment prior to executing all diligences. (Note - If a public creditor chooses to pursue debt by decree as opposed to summary warrant they do not require a charge for payment prior to enforcement by arrestment - see non earnings arrestment).
Statutory Demand for Payment of Debt Expand The statutory demand is basically a formal demand by a creditor giving the debtor 21 days to repay a debt. The demand must be in the proper form (Form 5) and be served by a sheriff officer personally on the debtor. A creditor may use a statutory demand where the debt amounts to not less than £1,500 but this would not make them a “qualified creditor” so they would have to join with other creditor/s to reach the qualifying level of £3,000 in order to petition for a debtor’s sequestration. If within 3 weeks after the date of service of the demand the debtor has not: (i) complied with the demand; Or (ii) intimated to the creditor, by recorded delivery, that he denies that there is a debt or that the sum claimed by the creditor as the debt is immediately payable. If this genuinly applies to the debtor, they should fill in the denial slip accordingly. The creditor can then petition for the debtor’s sequestration.
Sisting (of an action) Expand The sisting of an action brings the proceedings to a temporary halt. The debtor can make a personal request or lodge an Incidental Application. This can be used to allow time for the debtor to come to a repayment agreement (e.g. with rent arrears). With sisting the case actually comes off the court agenda and the pursuer would have to ask the court to reawaken the case should the debtor default.
Sheriff Officers Expand Sheriff officers are part of a larger organisation known as the Society of Messengers-at-Arms and Sheriff Officers (SMASO), which was established in 1922,. It is the only organisation which represents the interests of Scottish officers of court and acts as a channel of communication between officers of court, the legal professions, prospective clients and various authorities concerned with the execution of civil court warrants within Scotland. A Messenger-at-Arms is an officer of the Court of Session which is the supreme civil court in Scotland. A Messenger-at-Arms can travel anywhere in Scotland and can serve documents and enforce court orders of the Supreme Court. A Sheriff Officer is an officer of the regional civil court. Scotland is geographically divided into six sheriffdoms and 49 local sheriff court districts. Unlike a Messenger-at-Arms, a Sheriff Officer can only operate in the geographical area for which he holds a commission.
Sheriff Court and Civil Procedures Expand For legal purposes Scotland is split into six regions called Sheriffdoms. Each Sheriffdom has a Sheriff Principal who, in addition to hearing appeals in civil matters, has responsibility for the conduct of the courts. Within these Sheriffdoms there are a total of forty-nine Sheriff Courts varying in size and design but all serving the same purpose. Most cases are heard before a judge called a Sheriff. The work of the Sheriff Courts can be divided into three main categories, i.e. Civil, Criminal and Commissary, and is administered by local Sheriff Clerks and their staff. Court locations and contact numbers can be found on the Scottish Court website. Civil Procedures The Simple Procedure The Simple Procedure is a court process designed to provide a speedy, inexpensive and informal way to resolve disputes. It was introduced on the 28th November 2016 as a result of the Courts Reform (Scotland) Act 2014. The Simple procedure replaces the small claims procedure and part of the summary cause procedure and has changed some of the court language OLD NEW PURSUER CLAIMANT DEFENDER RESPONDENT SUMMONS CLAIM FORM SIST PAUSE RECALL OF SIST RESTART DECREE DECISION The 5 principles of the simple procedure are: (1) Cases are to be resolved as quickly as possible, at the least expense to parties and the courts. (2) The approach of the court to a case is to be as informal as is appropriate, taking into account the nature and complexity of the dispute. (3) Parties are to be treated even-handedly by the court. (4) Parties are to be encouraged to settle their disputes by negotiation or alternative dispute resolution and should be able to do so throughout the progress of a case. (5) Parties should only have to come to court when it is necessary to do so to progress or resolve their dispute. To view Simple Procedure rules and procedures click here. The Summary Cause Procedure The summary cause procedure is still in use in the courts however, if a claimant (pursuer) is raising a monetary claim which has a value of £5,000 or less for payment, delivery or recovery of possession of moveable property, the Simple Procedure should be used. To view Summary Cause Procedure rules and procedures click here The Ordinary Cause Procedure The ordinary procedure has not been changed by the introduction of the Simple Procedure, therefore; it still uses the old language, thus: The person raising the action is called the Pursuer and The person whom the action is against is called the Defender Every ordinary cause commences by an Initial Writ which is “warranted” by the sheriff clerk and served on the defender by either a solicitor or a sheriff officer or first class recorded delivery. This is a formal document set out, in terms of the Ordinary Rules The Ordinary Cause procedure can be used in the sheriff court where the value of the claim is over £5000. It is also the procedure used in the sheriff court for a number of other actions, for example; family actions, including divorce, dissolution of civil partnership, applications for orders relating to children eg. residence and contact. The procedure is quite complex and the Scottish Courts and Tribunals Service would therefore advise applicants to seek legal advice. To view Ordinary Cause Procedure rules and procedures click here
Regulated and Unregulated (Exempt) Credit Agreements Expand Most personal credit agreements are regulated under the Consumer Credit Act 1974 (The Act 74). The Act 74 sets out the rules which state the rights and obligations for both the lender and the borrower. The consumer credit act gives borrowers many rights and protections under a regulated agreement. There are some debts that are not regulated under the Act 74. These are some examples of non-regulated agreements: An agreement providing £25,000 or more credit which was signed before 6th April 2008 (or £15,000 if signed before 1st May 1998) A mortgage A small agreement less than £50 Some low-interest agreements such as student loans Services intended to be repaid in one amount, such as charge cards Credit agreements of £25,000 or more signed after 6th April 2008 where the debt was wholly or primarily for business use From 6 April 2007 partnerships with four or more partners are not be covered by the Act 74.
Protected trust deed Expand A protected trust deed is a special kind of trust deed and unlike an ordinary trust deed it is binding on all the creditors. This means that, provided the debtor complies with the terms of the protected trust deed, the creditors cannot take further action to recover the money owed or apply for bankruptcy. Secured creditors may, however, still take action to take possession of the debtor's home if the debtor falls behind with the mortgage payments. A protected trust deed prevents the debtor applying for their own bankruptcy or for a debt payment programme under the Debt Arrangement Scheme (DAS). If a debtor runs up any new debts after they sign the trust deed, they will not be protected from legal action by these new creditors. To view or download the AIB's Guide on Trust Deeds click here
Prescription of a debt Expand The Prescription and Limitation (Scotland) Act 1973 is a very complex piece of legislation. However, money advisers should be aware of certain areas which may impact on the advice they give to clients. Negative Prescription is the part of the Act that concerns money advisers. It deals with the lapse of time on rights and obligations and this may affect a creditor’s right to pursue a debt. If a debt has existed for a period of five years or more without the creditor taking court action for recovery, then that debt would prescribe and be extinguished. However, if the debtor had written to the creditor acknowledging that the obligation or debt existed, or had made any payments, the five-year period would restart. This is known as the five-year negative prescriptive period and applies among other things to any obligation to pay sums of money due by way of interest or instalment. A creditor could restart the five-year period by making a relevant claim (e.g. a court or arbitration action). There is also a twenty-year negative prescriptive period. A decree of court has a twenty-year prescriptive life and council tax debts where a summary warrant has been applied would also come under the twenty-year negative prescriptive period as a summary warrant is equivalent to a decree. The twenty year prescriptive period is also applied if an authority is exercising its jurisdiction under any enactment.
Money Advice Liaison Group (MALG) Expand MALG is a non-policy making body and, as such, the Guidelines that they publish are voluntary. However they are referred to in the Financial Conduct Authority (FCA)’s Consumer Credit Sourcebook1 and in industry codes, reflecting their importance. The Guidelines indicate good practice in the treatment of consumers with mental health conditions, particularly where that mental health condition affects the consumer’s ability to manage money. It is hoped that the Guidelines will result in a greater awareness of the difficulties such people face. To view the MALG Awareness Guidelines click here.
Mortgage rescue schemes Expand The scheme which applies exclusively in Scotland is called the Scottish Government Homeowners’ Support Fund and comprises two distinct schemes dependent on the homeowner’s circumstances. The two schemes are the Mortgage to Rent scheme and the Mortgage to Shared Equity scheme: Mortgage to Rent scheme The Mortgage to Rent Scheme allows home owners to sell their home to a participating social landlord and remain in the home as a tenant with a Scottish Secure Tenancy. In addition to the above criteria, where they have a capital and interest mortgage they must not have more than 25% of equity; if they have an interest only mortgage or a trustee has been appointed to their estate, this criteria does not apply. If an application is approved the property is sold to a participating housing association or local authority. The borrower can receive back up to £11,360 of any equity they have where they are under 60; £17,040 where they are over 60. The Scottish Government won't get involved in shortfall negotiations between lenders and applicants. If you need support, your Money Adviser will able to assist you. Mortgage to Shared Equity scheme This scheme allows the Government to provide a loan to pay off some of the debtors secured debt and, therefore, reduce their monthly payments. The home owner is not required to make monthly payments for this loan. A Scottish Government adviser decides what level of secured debt they will pay off based on what the borrower can afford. This reduces the home owner’s monthly payment. The borrower must be in a repayment mortgage and have at least 20% of equity. They must also not have a trustee appointed to their estate and their home must meet tolerable standards. Borrowers in the Mortgage to Shared Equity Scheme will be expected to remain in the Scheme for at least two years, after which they can buy back as much of their equity as they can afford. The Scottish Government expects them to buy back all their equity within ten years. The home owner is responsible for all the legal and survey fees in the scheme. For more information, view the Scottish Government’s Homeowners’ Support Fund webpage.
Mortgage repossession in Scotland Expand See the section under Home Owner and Debtor Protection (Scotland) Act 2010
Mental health and debt Expand Creditors should operate a suitable business practice for identifying and dealing appropriately with borrowers who they understand or suspect may have mental capacity limitations. In Section 7.2 of the Financial Conduct Authority’s Consumer Credit Source Book (CONC) they state that Firms must establish and implement clear, effective and appropriate policies and procedures for: (1) dealing with customers whose accounts fall into arrears; (2) the fair and appropriate treatment of customer who the firm understands, or reasonably suspects, to be particularly vulnerable. Customers who have mental health difficulties or mental capacity limitations may fall into the category of particularly vulnerable customers. In developing procedures and policies for dealing with customers who may not have the mental capacity to make financial decisions, Firms may wish to have regard to the principles outlined in the Money Advice Liaison Group (MALG) Guidelines "Good Practice Awareness Guidelines for helping Consumers with Mental Health Problems and Debt".
Lending Standards Board Expand The Lending Standards Board is the successor organisation to the Banking Code Standards Board and began its work on 2 November 2009. They monitor and enforce the Standards of Lending Practice, making sure that their registered firms and their agents provide a fair deal to personal and business customers. The Lending Code was replaced by the Standards of Lending Practice in July 2016. The Standards cover the credit and debt elements of the old banking code, other parts will be covered by Financial Conduct Authority regulation of deposit taking. The Standards cover good practice in relation to unsecured loans, lending aspects of credit cards and charge cards and current account overdrafts. If you have a problem with your financial service provider, you should complain first to the bank, building society or card issuer involved. They will give you a copy of their complaints procedure. This sets out the timescale they are required to follow in dealing with your complaint.
Law Society of Scotland Expand The Law Society of Scotland is the professional governing body for Scottish solicitors. It also helps to shape the law for the benefit of both the public and the profession. The Society was established in 1949 and their rules are set out in the Solicitors (Scotland) Act 1980. They are funded by members who are all practising solicitors of the Society.
Interdicts Expand An action for interdict seeks a judicial remedy granted by a court forbidding an act or course of action. They are most common in family actions but not in other forms of litigation. As court procedures can take some time it is normal to ask for an interim interdict as a lengthy wait might defeat the original purpose of raising the action. There are procedures in place to grant an interim interdict very speedily and even outwith normal court hours of business.