Personal Financial Difficulties : Who will give me advice?

November 2019

Whether self employed, working for a company or currently unemployed, there are many reasons why you might find it necessary to seek advice regarding your personal financial affairs e.g. divorce, economic recession, financial mismanagement, unexpected drop in a source of income, or loss of an asset.

In reality, the vast majority of people want to pay what they owe to their creditors and, whilst a perfectly laudable and natural intention, if there is simply not enough cash available to deal with the situation, consideration may have to be given to regularising matters by means of sequestration (the Scottish term for bankruptcy), a trust deed or using the Debt Arrangement Scheme “DAS”.

There are a variety of methods, formal and informal, for dealing with debts when they become unmanageable and proper advice is required. Typically, the advice process will begin with either a meeting or telephone conversation with an Approved Money Advisor who will seek to allay the initial anxiety, listen carefully, not be judgemental, and then explain the various options so that an informed decision can be taken. At a time such as this, it is often useful for the person receiving the advice to be accompanied by someone who can “clear the mist of a clouded mind” by helping to read and understand correspondence, take notes or simply provide emotional support : rather like visiting a doctor when bad news is anticipated.

A key reason for explaining the options is that each case is different and, for example, someone owning a house is likely to focus upon what might happen to such house, whereas someone in rented accommodation may well be more interested in the effect on other assets, particularly if he/she runs a business.

Experience suggests that the house is often the most important consideration. In this regard, the advisor will want to know an approximate value and the level of secured indebtedness (there may be one or two lenders), together with the title position. If there is equity in the house and the person wishes to remain in the house, a plan will be required about how best to retain it. Guidance from the accountant in bankruptcy (the State office that oversees formal personal financial solutions in Scotland) is to deal with the house as early as possible because the purpose of the exercise is not to become involved in property speculation but to provide a financial return to creditors.

If a DAS is the appropriate option, the good news is that one’s principal dwelling is exempt from attack, but the downside is likely to mean a longer period of regular contributions from income compared to either sequestration or a trust deed. The important point to note about a DAS is that all debts require to be settled in full (the DAS system will freeze interest and ongoing penalties). Clearly, the potential to settle all creditors over a period of up to, say, ten years, depends upon the contribution level from income i.e. an unemployed person will not be suited to a DAS.

Thus, as one might expect, a full assessment of income and expenditure is undertaken in order to determine what is left at the end of the month and, in this regard, the Common Financial Tool “CFT” is used across Scotland in order to be fair and reasonable to all Scots. The CFT has numerous expenditure categories because the State recognises that we all have different lifestyles.

If you elect to present a sequestration application to the State, an award is not granted until you agree the level of contribution which, by law, will be for a minimum period of four years. This contrasts slightly with signing a trust deed because that process tends to permit a more variable contribution level/period. As has been noted earlier in this article, each case must be taken on its merits and proper advice taken in order that the full impact of a decision is known/understood.

The process is complex and quite a lot of documentation is provided to each person receiving advice in order that it can be demonstrated that the full range of options has been tabled.

As ever in situations of personal financial difficulty, individual or business-related, it is rarely too early to seek expert advice which will be provided on a confidential basis. Most Accredited Money Advisors, including Meston Reid & Co, provide the first consultation free of charge. For most people who are feeling worried and stressed about their financial affairs and are not sure who to turn to in their hour of need, there is little to lose from an initial chat.

The views in this article are those of Michael J M Reid, licensed insolvency practitioner and partner of Meston Reid & Co, chartered accountants, Aberdeen. They do not purport to represent those of the firm in general.