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We take all reasonable steps to ensure that the information in the resource section is up to date and correct, however; we cannot accept responsibility for any errors that may arise due to changes outwith our control.
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Calling Up Notice
Charge for Payment
Competition and Markets Authority (CMA)
Consumer Credit Act 1974
Continuation (of an action)
Credit (High Cost Credit Report)
Credit and Debt Guidance
Credit Reference Agencies
Financial Capability: Money Advice Scotland's E-Learning modules
Financial Conduct Authority (FCA)
Financial Conduct Authority (FCA) Authorisation
Financial Ombudsman Service (FOS)
Financial Services Compensation Scheme
The Accountant in Bankruptcy (AiB) is an Executive Agency of the Scottish Government under the terms of the Scotland Act 1998. The Agency operates independently and impartially while remaining directly accountable to Scottish Ministers. The Chief Executive is also The Accountant in Bankruptcy (The Accountant), who is an Independent Statutory Officer and an officer of the court appointed under section 1 of the Bankruptcy (Scotland) Act 1985, as amended.
The AiB aims to ensure access to fair and just processes of debt relief and debt management for the people of Scotland, which takes account of the rights and interests of those involved.
Adjudication for debt is the diligence which creditors may use against specific heritable property of the debtor.
A creditor, who has, say, decree for payment, must first raise an action of adjudication in the Court of Session. Decree in that action gives the creditor some rights over the debtor’s property (such as the ability to remove the debtor from possession and to let the property).
However, if the debt is not paid off, a 10-year period (the “legal”) must expire before the creditor can take the next step, raising an action for declarator of expiry of the legal. Decree in that action has the effect of transferring ownership of the property to the creditor. The diligence was very little used however it has become more popular in the last few years.
The Annual Percentage Rate (of charge) gives the cost of a credit agreement taking account of all the charges made under the agreement. It allows consumers to compare different credit deals and choose the one which suits them best. However, it should be recognised that all types of credit deals are not available to all consumers and some people may find that they have to borrow at very high interest rates in order to obtain credit.
Apparent insolvency is a legal term that shows a debtor cannot pay their debts as they become due. There are various ways in which apparent insolvency is triggered however, the most commonly used types of proof are:
Among the other more remote types of proof are:
• A decree of adjudication has been granted
• A debt payment programme under DAS has been revoked
Apparent insolvency remains in place until either the debtor is discharged or becomes able to pay the debts and does so
This type of arrestment is used on a debtor’s moveable assets which are in the hands of a third party. If the assets were in the debtor’s own hands the diligence of attachment would need to be used. Although it is not exclusively used against money held in banks or building societies this is by far the main type of action for this type of arrestment. Although a creditor could arrest goods that were held in storage by a third party (e.g. furniture).
• The creditor is known as the Arrester
• The debtor is known as the Common Debtor
• The bank or building society is known as the Arrestee
The Bankruptcy and Diligence etc (Scotland) Act 2007 has introduced a protected minimum balance (PMB) of funds within a bank or other financial institution that is protected from arrestment. This sum is presently £494.01 provided that the debtor is an individual and the account is not a business or trading account. The arrestment does not automatically transfer money from the debtor’s account to the creditor but freezes the amount above £494.01 and if the debtor refuses to sign a mandate for release the money will be automatically released after 14 weeks.
Where funds are attached as a result of the arrestment, the amount arrested is limited to either, the amount the arrestee holds for the debtor or the total amount (including all charges, expenses and interest) due to the creditor, whichever is less.
Arrestment of earnings
There are three types of diligence that can be used to arrest a debtor’s earnings or wages:
1. Earnings arrestment
Earnings arrestment is used to make a deduction from a debtor's earnings for enforcement of a single debt. A creditor must be in possession of a decree (or relevant document of debt) and must have issued the debtor with a Charge for Payment, which must have expired (14 or 28 days), before proceeding with diligence against earnings. Creditor must provide debtor with a Debt and Information Package (DAIP). This type of arrestment requires the debtor’s employer to deduct sums in accordance with the earnings arrestment tables SSI 2015 No 370-The Diligence against Earnings (Variation) (Scotland) Regulations 2015 which came into force on the 6th April 2016 and pass the deduction to the creditor.
2. Current maintenance arrestment
Current maintenance arrestment (CMA) can be used to enforce the payment of maintenance, such as a regular allowance awarded by a court on divorce, when the debtor is in default. A creditor must have a current maintenance order from the court on which the debtor has defaulted and, where the debtor is an individual, the creditor must also have provided them with a DAIP. This type of arrestment requires the debtor’s employer to deduct sums in accordance with the earnings arrestment tables (see earnings arrestment tables) and pass the deduction to the creditor.
3. Conjoined arrestment order
A conjoined arrestment order is an order granted by the court to enforce payment of two or more of the same type of debts, at the same time. For conjoined arrestment orders, the debtor's employer is required to make a deduction and pass it to the court to distribute the funds. The amount deducted is still the same as it would be for a single arrestment only the sum is divided in a pro-rata basis between the conjoined creditors.
In all the above diligences the Debt and Information Package (DAIP) must be served on the debtor no earlier than 12 weeks before the arrestment.
The process of Attachment was introduced by the Debt Arrangement and Attachment (Scotland) Act 2002 (2002 Act). Click here to view act.
Note-Amendment to Section 11 (1) (b)
“any vehicle, the use of which is so reasonably required by the debtor, not exceeding in value £3,000 or such amount as may be prescribed in regulations made by the Scottish Ministers”
Over the years different forms of attachment have been introduced to cope with different circumstances which may arise, the attachments currently in force are:
This is a provisional diligence and is basically a “Diligence on the Dependence”. It allows the creditor to attach moveable assets of the debtor before the action has started. The court may, upon application any time after interim attachment, make provision for the security of attached articles.
This interim diligence does not allow the creditor to take steps to dispose of the attached items and when a decree is granted, a further valuation and attachment must be carried out before the creditor can proceed to sell attached goods.
Interim attachment may not be used to attach the following assets -
• Those inside the debtor’s home;
• Those which are exempt under section 11 of the 2002 Act
Attachment only applies to assets which are kept out-with the dwellinghouse. This could mean in a garage, on a driveway or in business premises. It allows a creditor to seize a debtor's moveable property as a means of recovering money owed. Unlike arrestment, which is used against property held by a third party, attachment can be used to seize property owned by the debtor and in their possession.
Attachment may not be used to attach the following assets:
• Those inside the debtor’s home;
• Those which are exempt under section 11 of the 2002 Act
This procedure allows attachment of non-essential assets within the debtor’s dwelling house, but only on application by the creditor and only where the sheriff is satisfied that there are exceptional circumstances. (The list of non-essential assets can be found in Schedule 2 of the 2002 Act).
The sheriff will satisfy himself that the creditor has taken reasonable steps to negotiate a settlement of the debt with the debtor. The sheriff will also check that the creditor has already executed or attempted to execute an arrestment and an earnings arrestment and that there is a reasonable prospect that any sums recovered through exceptional attachment would produce the aggregate of chargeable expenses and £100. Under an exceptional attachment articles may be removed immediately unless it is impractical to do so.
Money attachment is permitted to enforce payment of a debt only if the creditor holds a court decree or other and has served a charge for payment on the debtor
Where the debtor is an individual, the creditor has, no earlier than 12 weeks before executing the money attachment, provided the debtor with a debt advice and information package. Money in a dwellinghouse cannot be attached.
Money means cash (sterling and other currencies), cheques, negotiable instruments, promissory notes, money orders and postal orders. It is thought that the main areas where money attachment will be used is in places where cash changes hands, such as in shops, public houses and places of entertainment.
There are certain days and times when an attachment, exceptional attachment and money attachment cannot be carried out unless prior authority has been granted by the sheriff. All these attachments may not be carried out on Sundays and public holidays, before 8am or after 8pm, and if started within these times it cannot continue past 8pm. The sheriff officer carrying out the attachment has the power to 'open shut and lockfast places' in order to carry out a money attachment.
The Scottish legal term for bankruptcy is Sequestration. It is a process whereby a person is formally declared to be bankrupt following on from an application to the Accountant in Bankruptcy. The procedure is governed mainly by the Bankruptcy (Scotland) Act 1985 (the 1985 Act) and the Bankruptcy and Debt Advice (Scotland) Act 2014. The legislation covering all areas of personal insolvency can be found in the “Guidance” section of the AIB’s Website. www.aib.gov.uk
The person is no longer known as a bankrupt but is referred to simply as the debtor.
The process of sequestration means to transfer the assets and property belonging to the debtor into the hands of a Trustee, who will then dispose of them for the benefit of the creditors. Bankruptcy can have serious consequences for a debtor and should never be entered into lightly.
Bankruptcy (who can apply)
A Creditor - A creditor or a group of creditors who are owed at least £3,000 may apply to the sheriff court for a debtor’s sequestration. Debtor MUST have been issued with a Debt Advice and Information Package (DAIP) the court will then issue a Warrant to Cite giving the date of the hearing. If debtor wishes to be sequestrated they need not attend court but if they do not wish to be sequestrated they must attend or be represented at court to give their reasons.
A Trustee - A Trustee acting under a trust deed can apply for a debtor's sequestration under Section 5(2) (b) (iv) of the 1985 Act if: The debtor has failed to comply with an obligation under the trust deed, or a reasonable requirement or instruction of the trustee and the trustee avers that bankruptcy is in the best interests of creditors.
A Debtor - A Debtor who meets the various criteria may petition for their own bankruptcy. The routes available to the debtor have increased in order to prevent those for whom bankruptcy is the most suitable option from being excluded.
The conditions for a debtor applying for bankruptcy are:
- they must owe a total debt of at least £1,500, but no more than £17,000 for MAP. If your debts are over £17,000, or own assets valuing £2,000 or more then you can only apply for bankruptcy under the full administration route
- they must have received money advice from a money adviser
- they must be living in Scotland, have lived in Scotland or have established a place of business in Scotland, in the year immediately preceding the date of your application
- they must not have been made bankrupt in the last 5 years
- they must pay the application fee. (Depending on which route into bankruptcy they apply for, there are two different costs:
It costs £90 to submit an application through the Minimal Asset Process (MAP) or £200 for full administration which is through the Apparent Insolvency (AI) or Certificate for Sequestration (CFS) routes.
NOTE-A debtor cannot apply for bankruptcy through MAP if they have been made bankrupt through MAP in the previous 10 years.
They must also meet one of the following conditions:
- they must meet the conditions for MAP; or
- they must be Apparently Insolvent; or
- they must have a Certificate of Sequestration.
Apparent insolvency route (AI) - most likely the creditor would have served a charge for payment or a statutory demand; this would allow the debtor to petition for their own bankruptcy.
Minimal Asset Process (MAP) - To meet the criteria for this route a debtor must not have a single asset worth more than £1,000. This excludes a vehicle worth up to £3,000 that they reasonably require, for example, to get to work. The total value of their total assets cannot be more than £2,000 (excluding a vehicle mentioned above) and they must not own, or jointly own, a house or any other property or land and you must not have debts of more than £17,000.
In addition to the above conditions they also need to have been in receipt of benefits for at least 6 months or have been assessed as not required to make a contribution towards the bankruptcy. They also require a Certificate for Sequestration which must have been signed by a qualified money adviser.
Certificate for Sequestration Route (CFS) - this route was introduced to provide debt relief for those debtors who could not demonstrate that they met the requirements for apparent insolvency. This route was introduced by the Home Owner and Debtor protection (Scotland) Act 2010 (click here to view act) and requires a money adviser or insolvency practitioner to declare that the debtor is unable to pay their debts as they become due.
There is more detailed guides and information available on the Accountant of Bankruptcy’s Website - www.aib.gov.uk
Basic bank accounts offer a convenient place to keep money you need for everyday use. You can arrange to have wages, State Pension and benefits or tax credits paid into one. You can also pay in cheques or cash free of charge, and set up 'direct debits' which pay regular bills automatically from your account.
With a basic bank account you get a cash card which you can use at a bank machine to withdraw cash. Some also offer a 'debit card' that you can pay for items with, and get 'cashback'; but with a basic account these will only work if there's enough money in your account.
You don't get a cheque book with a basic bank account, and you can't take out more money than is in the account ('go overdrawn'). For this reason basic bank accounts are useful for anyone worried about overspending.
The Money Advice Service have excellent information on their website explaining basic bank accounts. They also have a “How to choose a basic bank account” comparison table which allows people to select the account that is right for them.
To view click here: https://www.moneyadviceservice.org.uk/en/articles/basic-bank-accounts
The Scottish Government have produced an information leaflet giving help and advice at this stressful time.
The website, Funeral Choice provides free independent information to help you have a better understanding on the costs and funeral options available.
A lender can issue a calling up notice if the debtor fails to keep up with the mortgage payments. Basically the notice ends the agreement and asks the debtor for repayment of the principal sum, plus arrears, interest and expenses within two months. If the debtor fails to comply with the calling up notice the creditor can exercise their rights which include, entering into possession, selling or letting the subjects. The creditor also has to serve a Section 11 notice on the debtor’s local council which states that the creditor intends to repossess the property and the debtor may become homeless.
Recently there have been two very important court decisions involving when and how a calling up notice should be served:
1. On 24/11/10 the UK Supreme Court decided that lenders must serve a calling up notice otherwise the action will be incompetent. (A decision from the Supreme Court binds all courts below it).
2. On 26/07/11 at Edinburgh Sheriff Court in the case of Santander V David Gallagher it was held that when a lender uses sheriff officers to serve a calling up notice then they must physically give the calling up notice to the borrower. (To comply with S.19 (6) of 1970 Act) It is not enough to check that the person lives there and then leave at the house-as often happens. The full case can be viewed by going the Scottish Court Website.
A calling up notice ceases to have effect after five years from the date of the notice.
A charge for payment is a formal request in writing served on the debtor by the creditor after they have obtained a decree from the court. It gives the debtor fourteen days to pay the debt if they are resident within the UK and 28 days if they are outwith the UK. The charge can also be used to prove apparent insolvency and would allow a debtor to petition for their own sequestration.
A consolidation loan is where a borrower takes out a further loan to pay off all the existing loans, therefore consolidating the debts into one single loan. The new loan can be unsecured but normally it is secured against the home becoming a second mortgage or secured loan. This can be a workable option for some borrowers as the single payment will be less than they have been paying to all their other creditors, if they can manage to keep up the normal payments without having to resort to additional loans. However, if the normal payments cannot be met or they continue to borrow on top of the consolidated loans then the borrower’s home could be at risk.
The Competition and Ma)rkets Authority (CMA work to promote competition for the benefit of consumers, both within and outside the UK. Their aim is to make markets work well for consumers, businesses and the economy.
They came into being on 1 April 2014 and took over many of the functions of the Competition Commission (CC) and the Office of Fair Trading (OFT).
They are responsible for:
- investigating mergers which could restrict competition
- conducting market studies and investigations in markets where there may be competition and consumer problems
- investigating where there may be breaches of UK or EU prohibitions against anti-competitive agreements and abuses of dominant positions
- bringing criminal proceedings against individuals who commit the cartel offence
- enforcing consumer protection legislation to tackle practices and market conditions that make it difficult for consumers to exercise choice
- co-operating with sector regulators and encouraging them to use their competition powers
- considering regulatory references and appeals
They work in partnership with other a range of organisations in the UK and internationally.
In the UK these include:
- Trading Standards
- Citizens Advice and Citizens’ Advice Scotland
- business groups
- sector regulators
- other government departments
- fellow competition and consumer bodies across the world
Report issues to the CMA
Please use this form to report any issues relating to a market not working well, unfair terms in a contract, or any issues related to poor competition.
To view form please click this link-
Before 1974, consumer credit law had developed in a piece meal way, largely as a response to advances in retail practices. Numerous different Acts were involved in enforcing the law which dealt with the type of lender, rather than dealing with credit as a whole.
In 1968 the Crowther Committee was appointed to review the whole legal framework of credit granting and security. Its remit was to review all aspects of credit control and make recommendations for change.
The Committee recommended sweeping changes with the main principles to be:
- The redress of bargaining equality
- The control of trading malpractice
- The regulation of default remedies
The Crowther Committee’s report led to the Consumer Credit Act 1974 (CCA 74). It afforded the consumer greater protection while embodying the American principle of ‘truth and openness in lending’ throughout the Act.
The Act was amended by the Consumer Credit Act 2006 which came into force on the 30 March 2006. The changes were phased in over a two year period and have now been implemented.
It also amended the Consumer Credit Act 1974; to extend the ombudsman scheme under the Financial Services and Markets Act 2000 to cover licensees under the Consumer Credit Act 1974; and for connected purposes.
The Act deals with all regulated credit agreements financial limits were removed on 1st April 2008.
Further changes to consumer credit regulations:
After the tremendous task of implementing the changes which flowed from the 2006 Act there came further changes from the direction of the European Community.
The Consumer Credit Directive
From the 1st February 2011 any lenders providing unsecured loans which are regulated by the Consumer Credit Act 1974 will have to comply with new guidelines imposed by the Consumer Credit (EU Directive) Regulations 2010. The new directive makes a number of changes to the CCA 74 in an attempt to make lending fairer while giving borrowers greater rights.
The rules have been in force on a voluntary basis since April 2010 but on the 1st February they became compulsory.
Loans on or after the 1st February will have to comply with the new regulations provided that they meet the criteria. To view guidance on the directive which also gives a summary of the changes click here.
The Consumer Credit Act 1974 is a UK Act and therefore falls under the auspices of the Westminster Parliament.
On 1st April 2014, the Financial Conduct Authority (FCA), formerly the Financial Services Authority, took over the regulation of consumer credit firms, which were previously regulated by the Office of Fair Trading
The continuation of an action is an order made by a sheriff to continue the case to another date. The debtor would need to make a personal request to the sheriff to have the case continued. This can be a helpful way for the debtor to gain time to come to some arrangement with the creditor. The case is still on the court agenda as this is only a temporary postponement.
This is the system of local taxation used to part fund the services of local government in Scotland. There are council tax benefit payments available for those who are eligible and there are discounts and exemptions available depending on the circumstances. For more information click here.
For information on council tax collection procedures see Summary Warrant.
This research was commissioned by the Department of Business, Innovation and Skills (BIS) from the Personal Finance Research Centre (PFRC) at Bristol University. The research looked at the likely impact on lenders and consumers of introducing a variable cap on the total cost of credit that can be charged in the short-to-medium term fixed-rate credit markets. It covered home credit, pawnbroking, retail payday lending (carried out in‐store) and online payday lending.
The latest report from the Financial Conduct Authority can be viewed here.
Below are listed some of the more common types of credit agreement:
Bank overdraft - this is a type of revolving credit which allows a customer to overdraw on their current account, normally up to an agreed limit. Penalties for unauthorized overdrafts can be severe.
Hire purchase/Conditional sale agreement - very similar in composition, the main difference between the two is that in a conditional sale agreement the customer is committed to purchasing the goods whereas in a hire purchase agreement the customer is hiring the goods until the last payment is made which contains a nominal option to buy payment. Main similarity is that in both types of agreement the goods do not become the property of the customer until the final payment is made so the goods remain the property of the creditor till then.
There are special conditions governing protection and termination of these two types of agreement. If a customer has paid one third or more of the total price of the goods they become protected and the creditor would need a court order to repossess them. (Note-in Scotland it can be argued that a creditor would need a court order at any time to repossess) There are also rights governing voluntary termination by a customer. If a customer has paid more a half or more of the total price payable they can terminate the agreement and hand back the goods. If they have paid less than half the total price they can still terminate but would have to make up the difference. The customer must give written notice to the creditor that they wish to terminate the agreement and must do it before the creditor terminates otherwise the opportunity will, be lost. Termination is different from voluntarily handing back the goods where the customer may find themselves with no goods and having to pay any shortfall.
Credit card - this is again a type of revolving credit where the customer can use the card to purchase goods or services or even draw cash advances. The card normally has a borrowing or spending limit which the customer should not exceed or there may be penalties. Customer can make a minimum monthly or whatever they can afford. Interest at a varying rate is added to the balance.
Credit sale agreement - this is a straight forward agreement where the customer purchases goods and agrees to make regular payments over a set period of time. The customer immediately becomes the owner of the goods and the interest rate may vary.
Secured loan (Second mortgage) - in this type of loan the customer puts up some form of security, normally the home. This loan may or may not be regulated by the consumer credit act depending on its purpose and when it was taken out. Prior to April 2008 the consumer credit act only applied to agreements worth £25,000 or less. Also not covered by the consumer credit act were secured loans that had been taken out with the first mortgage lender for home improvements. When the financial limits were removed from the Act all secured lending come under its jurisdiction.
The first-charge mortgage sector (your traditional home-purchase mortgage) is regulated by the Financial Conduct Authority (FCA).
Credit agreements (withdrawal)
The client has the right to withdraw from a prospective credit agreement at any time before it has been executed (e.g. signed by both parties).
Credit agreements (cancellation)
From the 1 February 2011 a customer has the right to withdraw from a credit agreement within 14 days without giving any reason under the consumer credit directive. It applies to all regulated agreements except:
• agreements for credit exceeding £60,260
• agreements secured on land
• restricted-use credit agreements to finance the purchase of land
• agreements for bridging loans in connection with the purchase of land
If the agreement was made before 1 February 2011, cancellation rights apply only where the credit agreement was:
• signed away from the trade premises; and
• following face to face negotiation with the creditor or supplier. Telephone calls do not count as face to face
In this case the client has a five day cooling off period from receipt of the creditor's signed copy of the agreement and a notice of cancellation rights.
For guidance on the Consumer Credit Directive click here
All the guidance on credit and debt collection which was formerly administered by the Office of Fair Trading has now been incorporated into the Financial Conduct Authority handbook.
Credit reference agencies give lenders a range of information about potential borrowers, which lenders use to make their decisions. The information shared may include information about your previous credit history. They hold certain information about most adults in the UK. This information is called your credit reference file or credit report.
The three main consumer credit reference agencies in the UK are Equifax, Experian and TransUnion (formerly Callcredit). The addresses of the three main credit reference agencies are:
Customer Service Centre
PO Box 10036
0844 335 0550
TransUnion (formerly Callcredit)
Consumer Services Team
PO Box 491
0330 024 7574
Customer Support Centre
PO Box 9000
0344 481 8000
A Credit Union is a profit sharing, democratically run financial co-operative which offers convenient savings and low interest loans to its members. The members own and manage their credit union themselves.
The three main aims of a Credit Union are:
• To encourage its members to save regularly
• To provide loans to members at very low rates of interest
• To provide members with help and support on managing their financial affairs (if required)
The Financial Conduct Authority (FCA) oversees and regulates credit unions.
The Association of British Credit Unions Ltd (ABCUL) is the leading trade association for credit unions in England, Scotland and Wales. ABCUL represents around 70% of credit unions who in turn provide services to 85% of the British credit union membership - www.abcul.org
DAS is a statutory scheme run by the Scottish Government to help debtors pay their debts by giving them more time to pay without the threat of court action from creditors. DAS freezes interest, fees and charges on the debt from the date when the DAS Debt Payment Programme (DPP) is approved and these will be written off if the debtor completes the programme.The scheme is delivered free by approved money advisers, by local council money advisers, by Citizens Advice Bureaux or by other Accountant in Bankruptcy approved money advisers. The scheme protects a debtor’s assets, including the home (as long as the debtor can keep up the mortgage payments).
The Debt Arrangement Scheme changed on the 1st July 2011 and has allowed more advisers to deliver DAS to the public. Some advisers work in the private sector and will make a charge for the service, however; they will have to advise debtors that there is free advice also available. It will be then up to the debtor to make the choice of which agency they use.
Entry provisions have also changed and couples can have a joint DAS and debtors with single debts can now enter a DAS. There is also payment breaks available for debtors who may suffer a short sharp reduction in their income.
The DAS Website www.dasscotland.gov.uk contains more detailed explanations and guidance for advisers, debtors and creditors.
A debt payment programme (DPP) is set up by a DAS approved money adviser. This is an agreement that allows debtors to pay off debts over an extended period of time. The programme can be for any amount of money or for any reasonable length of time.
If creditors all agree or are deemed to have agreed (because they do not respond) the debt payment programme under DAS is agreed automatically. Creditors will then be bound by this DPP as long as the debtor sticks to the agreement.
If creditors do not consent then the DAS administrator can still approve the debt payment programme if it is fair and reasonable to do so.
If the circumstances change, the programme can be varied to take account of this (if all creditors agree or if the DAS administrator decides it is fair and reasonable).
The DAS Website www.dasscotland.gov.uk contains more detailed explanations and guidance for advisers, debtors and creditors.
Since 2011 the DAS legislation has been updated in 2013, 2014, 2015 and 2018. All of this legislation can be viewed here along with publications, guidance and forms.
The DAS Administrator has also updated guidance on the Common Financial Tool (CFT) (May 2018 version). The CFT must be used by an approved money adviser when calculating a debtor's income for entry into a DAS/Bankruptcy. It is also used by Insolvency Practitioners when setting up Protected Trust Deeds. The up to date guidance can be viewed here.
The Debt Advice and Information Package (DAIP) (click here to view leaflet) provides important information for debtors to help them deal with their creditors. Where the debtor is an individual, a creditor is required by law to arrange to provide a DAIP prior to using most types of diligence. There is a set timescale for the issue of a DAIP within each of the processes in which it is required. Generally it must be issued no earlier than 12 weeks before diligence is carried out. The DAIP must also be issued before a creditor presents a petition for the debtor's bankruptcy and before the signing of a trust deed. The DAIP has been translated to different languages, view www.aib.gov.uk for more information.
A decree is basically an order of the court containing the court’s decision on the case. There are different types of decree but here we will only consider the most common ones used in a creditor versus debtor context.
Decree in favour of the pursuer
(Normally creditor): This means that the pursuer has been successful in their claim, it is sometimes referred to colloquially as an “open decree”. This will allow the pursuer to start diligence action against the defender (debtor) to retrieve the money owed.
Decree in absence
This is a decree granted in favour of the pursuer where the defender did not respond in any formal to the court summons. Approximately over 80% of cases that pass through the sheriff court are undefended.
Decree of absolvitor
This means that the pursuer's claim has been rejected by the court and they have made a decision in favour of the defender. This type of decree is much better for the defender as it stops the pursuer from raising the same action again.
Decree of dismissal (of the claim)
A decree of dismissal is also a decree in favour of the defender but the pursuer could raise the same action again.
Under Section 87(1) of the Consumer Credit Act 1974 the creditor is allowed to issue a default notice which gives the customer fourteen days from the date of receipt to pay the arrears. The default notice must contain all of the necessary information under the Consumer Credit (Enforcement, Default and Termination Notices) Regulations 1983. A creditor must serve a default notice before they can proceed to legal enforcement methods.
Diligence on the dependence is a provisional or protective measure which is used whilst a court action is ongoing, or just before an action is raised, but has not been finally disposed of. It allows the creditor (pursuer) in the action to take steps to preserve the debtor's (defender’s) property so that it will be available to satisfy any claim eventually upheld by the court.
Undoubtedly the effectiveness of using the courts to uphold the law would be undermined if, during the course of a court action, a party was able to dispose of money or other assets in order to avoid making a payment at the conclusion of those proceedings. Thus, diligence on the dependence is a necessary means of protecting those who are forced to use the courts to recover payments lawfully due to them and preventing disposal of assets in an attempt to defeat their legitimate rights.
Most common diligences used are Arrestment on the Dependence and Inhibition on the Dependence.
Under the Welfare Reforms Act 2012 an employer may be asked to deduct benefit overpayments that an employee owes the Department for Work and Pensions (DWP) from their pay. This is called a Direct Earnings Attachment (DEA).
To find out how it operates, click here.
This module has been developed by Money Advice Scotland in conjunction with The Money Advice Service and The Accountant in Bankruptcy (AIB)
The purpose of the module is to help improve the financial capability of people in Scotland. The module will be of use to you or your organisation, if you are or have contact with any of the following groups:
• People in Financial Difficulty,
• People in Bankruptcy,
• Young Adults (16–24 years),
• Redundant or Unemployed,
• Expectant Parents,
• Tenants and Homeowners.
For more information click here
On 1st April 2014, the Financial Conduct Authority (FCA), formally the Financial Services Authority, took over regulating consumer credit firms which were previously regulated by the Office of Fair Trading (OFT).
In March 2013, the Government and Financial Services Authority (FSA) published proposals to transfer the responsibility for consumer credit regulation away from the OFT.
In transferring consumer credit regulation from the OFT to the FCA, the Government has two guiding principles:
• that consumers should be better protected; and
• that the regulatory regime should be proportionate to the types of firms and risks posed by them.
It is expected that the FCA will be a tougher and more proactive regulator than both the FSA and the OFT, with powers to tackle consumer detriment. This includes a new product intervention power, which will enable the FCA to ban or impose requirements on financial products and aims to prevent consumer detriment.
Advisers can keep up to date with the changes by logging on to the credit section of the FCA’s website and also by signing up to receive their email updates.
Advisers can also view the Consumer Credit sourcebook (CONC). This is the specialist sourcebook for credit-related regulated activities. It details the standards of conduct that the FCA expect all credit related businesses to meet and also includes guidance previously published by the OFT which has now become rules under the FCA.
How they authorise
It is vital that firms and individuals offering financial services run their businesses in the best interests of consumers and uphold the integrity of the financial services industry. The FCA are responsible for authorising, supervising and taking action where needed against firms and individuals who undertake financial services activities.
Firms offering these ‘regulated activities’ have to be authorised or registered by the FCA, unless they are specifically exempt.
Meeting FCA requirements
Applicants have to meet a range of requirements for registration before the FCA allow them to operate in the market. The FCA review their business plans, risks, budgets, resources, systems, controls and whether key staff have the necessary qualifications, experience and ability to carry out their roles effectively. They must meet these requirements before the FCA authorise or register them.
To see if a firm should be authorised or registered, what forms should be supplied and what fees will have to be paid, see the FCA’s pages on authorisation.
FOS is an independent organisation set up by law to help resolve disputes between consumers and businesses. All businesses that hold a standard consumer credit licence must comply with these complaint handling requirements and must follow proper procedures when dealing with complaints about their consumer credit activities. Their customers have the right to refer unresolved disputes to the Financial Ombudsman Service.
The ombudsman service will not consider a complaint until the customer has first complained direct to the business concerned and given it a chance to put matters right. If the complaint cannot be resolved using the in-house procedure which normally takes around 8 weeks, the complainant may be able to refer the matter to the FOS.
To view the FOS Website and “How to complain” click here.
The FSCS is the UK's compensation fund of last resort for customers of authorised financial services firms. They may pay compensation if a firm is unable, or likely to be unable, to pay claims against it. There is no charge to consumers for this service.
The FSCS covers business conducted by firms authorised by the Financial Conduct Authority (FCA), the independent watchdog set up by government to regulate financial services in the UK and protect the rights of consumers. European firms (authorised by their home state regulator) that operate in the UK may also be covered.
Creditors have the power to collect their lawfully due debts. However, they are not allowed to harass debtors in the process.
Conduct used by creditors or collection agencies which causes upset or distress could constitute “harassment”.
The Protection from Harassment Act 1997 Section 8 provides that individuals have the right to be free from harassment and while this is not a statutory offence in Scotland, debtors could still raise a civil action. Advisers could also quote the Act when dealing with creditors.
The Financial Conduct Authority (FCA) have also dealt with this in their Consumer Credit sourcebook (CONC) which gives rules that FCA expect creditors to adhere to;
• Contact with customers
• Communication with third parties
• Debt collection visits
• Treatment of customers with mental capacity limitations
Advisors should refer to the FCA rules to judge whether creditors or collection agencies are adhering to them. Non-compliance with the rules is a serious matter and could ultimately risk an agency's FCA authorisation; without which, they would not be allowed to trade.
Advisers should try to find a resolution with the company in the first instance before taking the complaint to the Financial Ombudsman.
See information provided under Credit Agreements.
Residential Standard Securities, etc.: Creditors' Rights on Default
Part one of “the Act” seeks to give greater protection to homeowners who find themselves facing repossession of their homes.
“The Act” amends the following legislation
Heritable Securities (Scotland) Act 1894
Conveyancing and Feudal Reform (Scotland) Act 1970
Mortgage Rights (Scotland) Act 2001 (includes repeal of Section 2)
To view “the Act” click here
Every case for repossession must now call in court with the one exception of “voluntary surrender”. Here the security subject must be unoccupied and it must be certified in writing that everyone involved gives their agreement freely to the surrender.
Apart for the provision for voluntary surrender, all cases for repossession will now call in court and they will progress by way of ordinary cause procedure using summary application. “The Act” also introduces Pre-Action Requirements that must be completed before court action can be taken. This will ensure that the creditor has considered reasonable alternatives with the debtor before proceeding to repossession of the property.
As well as the changes that has flowed from “the Act” there also have been recent decisions made in both the Supreme Court and the Sheriff Court which have changed the procedure for using a calling up notice. The notice must now be served on the debtor or the action will be incompetent and the notice must also be delivered in person to the debtor by the sheriff officer.
The Pre-Action Requirements are:
Providing the debtor with clear information
Making reasonable efforts to agree proposals
Take account of steps taken by the debtor which are likely to result in payment within a reasonable time
To direct the debtor towards sources of advice and assistance
Form 11c (form of certificate for pre action requirements) must be lodged with the initial writ at the time it is presented to the court for registration
To view the Scottish Statutory Instrument for the pre-Action requirements click here.
When the action calls in court the sheriff must also consider the following factors:
The nature of the debt and the reasons for defaulting on the mortgage
The ability of the debtor to repay the amount due within a reasonable time
Any action taken by the lender to assist the debtor to pay the amount due
Participation by the debtor in a debt payment programme approved under the Debt Arrangement and Attachment (Scotland) Act 2002
The ability of the debtor and any other person residing at the security subjects to secure reasonable alternative accommodation.
An entitled resident is a person who’s sole or main residence is the security subjects (in whole or in part) and who is -
(a) the proprietor of the security subjects (where the proprietor is not the debtor in the standard security);
(b) the non-entitled spouse of the debtor or the proprietor of security subjects which are (in whole or in part) a matrimonial home;
(c) the non-entitled civil partner of the debtor or the proprietor of security subjects which are (in whole or in part) a family home;
(d) a person living together with the debtor or the proprietor as husband and wife;
(e) a person living together with the debtor or the proprietor in a relationship which has the characteristics of the relationship between civil partners;
(f) a person who lived together with the debtor or the proprietor in a relationship described in paragraph (d) or (e) if-
i. the security subjects (in whole or in part) are not the sole or main residence of the debtor or the proprietor;
ii. the person lived together with the debtor or the proprietor throughout the period of 6 months ending with the date on which the security subjects ceased to be the sole or main residence of the debtor or the proprietor; and
iii. the security subjects (in whole or in part) are the sole or main residence of a child aged under 16 who is a child of both parties in that relationship
Recall of Decree:
The 2010 Act enables the Lender, debtor or an entitled resident to recall the Decree for possession.
The debtor may only recall the Decree if they were not present or were not represented
An entitled resident may only recall the Decree if they were not present
Application for recall can be made right up until the eviction date
Application can only be made once, and it must be intimated to every relevant party
A representative must be:
Approved by a prescribed agency
Authorised by their client (who is working with the prescribed agency) to act on their behalf
Able to satisfy the sheriff throughout proceedings that they are competent to represent
What is a prescribed Agency?
Organisations with current entry on register of advice organisations established and maintained by Scottish Legal Aid Board
Organisations awarded Scottish National Standards for Information and Advice Providers (SNSIAP) accreditation at Type Ill
CABx which are full members of CAS
What can they do?
Subject to approval, authorisation and demonstration of competence, a lay representative can represent at all stages of the proceedings, including evidential hearings
A lay representative cannot act for a creditor
Lay representatives will be expected to have knowledge and understanding of:
Scottish law with regard to consumer credit, housing and repossession
Court procedures and rules, especially in relation to summary applications in the Sheriff Court
Competence at constructing and stating a case both orally and in writing
Clear and well defined research and analytical skills
Have knowledge of legal aid
To view the Scottish Statutory Instrument for the pre-Action requirements for Lay Representation in Proceedings relating to Residential Property click here.
Eligibility for legal aid to pay for a solicitor can be calculated by visiting the Scottish Legal Aid Board website.
Clients with legal aid may get court expenses modified to nil (but may incur other expenses).
Clawback of legal aid may occur and clients need to be made aware of this possibility.
As charges and exemption levels change it is better to always check with the Scottish Legal Aid Board Website www.slab.org.uk
Inhibition is a diligence that prohibits a debtor from selling, burdening or alienating any land that he owns to the detriment of the inhibiting creditor. Burdening means to take out a security on the property and alienating means to pass title to another.
An Inhibition does not in itself ‘do’ anything; rather, it prevents certain actions from taking place.
An Inhibition may be granted in either the Sheriff Court or the Court of Session. Action can proceed on the basis of:
A decree for payment (but without charge for payment)
An action which is pending
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.
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.
To view the website which has a “Find a solicitor” facility incorporated - www.lawscot.org.uk
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.
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".
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.
The Money Advice Service was set up as an independent body with responsibility for improving people’s money management in April 2010. They were initially known as the Consumer Financial Education Body, the name used in the Financial Services Act 2010 which set out their statutory objectives.
These are to:
- Enhance the understanding and knowledge of members of the public of financial matters (including the UK financial system); and
- Enhance the ability of members of the public to manage their own financial affairs.
To view the website www.moneyadviceservice.org.uk/en
The Money Advice Trust have conducted a lot of valuable research into debt and mental health and vulnerability over the past years and have worked in tandem with Bristol University in producing some excellent publications on the subject.
These can be viewed on the Money Advice Trust's Vulnerability resources hub.
See the section under Home Owner and Debtor Protection (Scotland) Act 2010
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.
My Money Steps is a new website where borrowers can get access to straight forward advice, information and the practical support they need to help them manage their borrowing and take control of their finances. For many who struggle to access free debt advice, using My Money Steps could be the vital first step to taking back control. It is free, impartial and backed by the Money Advice Trust, one of the UK’s leading debt advice charities and Barclaycard.
Click here for more details.
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.
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
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 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.
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: www.scotcourts.gov.uk
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
RECALL OF SIST
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
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
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.
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.
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;
(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.
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).
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.
For more information from the Money Advice Service click here
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.
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.
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.
See Sheriff Court and Civil Procedures section
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).
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.
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.
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).
Wiseradviser training programme for April '19 to March '20 now available at www.wiseradviser.org