Dealing with debt - Contact a Family · made in the future, so please call our freephone helpline on 0800 808 3555 for an update. Most of us will have debts of one sort or another,

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Dealing with debt Scotland

Information for familiesLast updated May 2011

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Contents

What are the warning signs that your debt is becoming unmanageable 3

What can you do? 3Are you liable for the debt 4Starting to manage your debts 6 Getting help to negotiate with your creditors 8What steps can creditors take to recover debts 10Maximising income 16Other financial assistance 19

Information in this guide

The information in this guide is based on the current rules. It is possible that changes will be made in the future, so please call our freephone helpline on 0800 808 3555 for an update.

Most of us will have debts of one sort or another, and many of us can experience problems repaying the money we owe. There are lots of reasons why this may be the case. You may have had an unexpected change in your circumstances or an unplanned increase in your weekly outgoings. Research carried out by Contact a Family and the Family Fund showed that families looking after a child with a disability are particularly likely to face debt problems. Nine out of ten families reported some form of financial difficulty, ranging from having little money for treats to serious financial difficulties. It’s estimated that on average, bringing up a child with a disability costs three times what it costs to bring up another child. Given this fact it’s no surprise that many families can struggle financially.

Some parents may only have one debt they have problems repaying, and others may owe money to a number of different people. No matter what your particular situation, it’s important that you don’t ignore your debt problems. The longer you wait before tackling your debt, the worse the problem is likely to become. Taking action at the earliest point can mean fewer problems to deal with in the future. If you are in debt, try not to panic – free, confidential and independent advice is available.

Call our freephone national helpline 0800 808 3555 for advice and support 3

What are the warning signs that your debt is becoming unmanageable?

It’s easy to move payments from one credit card to another for several months or keep up with minimum payments, so it can often feel that finances are under control. But an increase in the interest rates or an unexpected expenditure can suddenly cause problems. If the following warning signs apply it may be time to talk to somebody about the money you pay out:

• you have no savings• making minimum payments each month• using credit cards to pay for basic items such as groceries• increasing amounts of total monthly income going towards debts• you have more than two or three credit cards• after paying some off each month you increase the balance again by the end of the month• you’re near the credit limit • you’re not sure how much you owe in total.

What can you do?

Resist the temptation to borrow more to get out of debt if you can - although there are occasions when it may be worth switching to a new credit card offering a lower percentage rate while you reduce your overall balance. Always be sure to read the small print as many low or zero percent deals are introductory offers and should only really be a short term strategy to make sure the money you’re repaying is going towards your debts and not to cover interest charges.

If you’re in debt it’s very important that you keep in touch with the people or companies that you owe money to - known as your ‘creditors’. The person who owes money is known as the debtor. Often creditors send letters which are frightening and official with threats of court action and it can be tempting to try and avoid contact, particularly if you’re unable to repay the money you owe and are preoccupied with caring. If you do this it’s likely that they will assume that you simply don’t want to pay them. As a result they’re likely to take further action against you. So it’s very important that you contact your creditors to explain that you’re in financial difficulties.

This is a short guide to help with debts and cannot provide full details of the law. We strongly advise that you get the help of a money adviser in negotiating with creditors and there are details of organisations to contact for help listed in this guide. An adviser will help you to look at your whole situation and help you assess whether you’re able to make any payments to your creditors and if so how much. They will also be able to help you identify which creditors may have to be paid first. A money adviser may also be able to help you see if there are any ways your income can be increased. For instance they may be able to help you claim additional state benefits or help you apply for a grant from a charitable trust. See ‘Getting help to negotiate with your creditors’ on page 8 for details of how to get free and confidential advice from a money adviser.


Are you liable for the debt?

Before you enter into any arrangements to pay off a debt, you should always check to make sure the law says you have to pay it. This is called being liable for the debt. Sometimes people are asked to make payments they’re not legally liable to repay.

Generally speaking, you’re not liable for anyone else’s debt unless you’ve jointly signed an agreement or acted as a guarantor. Just because you live with someone, are married to them or have the same address doesn’t mean you’re necessarily liable for their debts. There can be some exceptions when the debts are for fuel or council tax and you should seek advice about this.

You will be liable if you’ve signed an agreement in order to get money, goods or services on credit.

If you signed an agreement alone, you have sole liability. This means that you (and nobody else) are liable to repay the debt.

If you signed an agreement along with someone else you have joint and several liability. This means that you and that other person will each be regarded as owing the full sum.

If you’ve signed an agreement as a guarantor (or what in Scotland can be known as a cautioner) for someone, this means that you’ve accepted liability for a debt if that other person does not pay.

Take advice if you’re in this situation. Check if there is any way of challenging your liability, for example, if you were misled or pressurised into signing the agreement.

Joint and several liability can also occur when specific legislation imposes it. For example, council tax legislation imposes joint and several liability on couples living together and joint tenants or owners. Before the implementation of the Civil Partnership Act 2004 in December 2005 same sex couples were not jointly and severally liable so seek further advice if you’re being pursued for debts before this date.

Death of the person owing money Generally speaking you’re not liable for the debts of someone who has died, regardless of how close your relationship was. There can be exceptions to this in limited circumstances, for example if you were jointly and severally liable for a debt with the deceased person or where you inherit a property with an outstanding mortgage from the deceased (although this will often be paid off by a life insurance policy).


Some people are protected by law with regard to the contracts they enter

Children’s debtA creditor cannot usually take action against a debt that is owed by a minor (generally someone aged under eighteen). In Scotland, minors aged 16 or over have slightly more ability to make enforceable contracts, but some contracts with minors may be set aside by the courts as generally they cannot enter into a contract. There are exceptions if it’s considered that the contract is for ‘necessities’. There is no standard definition of ‘necessities’, but examples include food and clothes. Seek advice from an advice agency if a creditor is trying to recover a debt from a minor.

Incapacity If someone wasn’t able to understand what they were doing when they entered into an agreement, it may not be enforceable due to their incapacity. Incapacity can be caused by mental illness, learning difficulties, drink or drugs. Seek further advice from an advice agency if you, or someone you’re caring for, is in this situation.

Undue influence If you’ve been forced to sign an agreement against your will (for example by a partner) or have been misled you should seek urgent legal advice. Similarly, you also should seek legal advice if you think that someone has signed an agreement in your name without your knowledge.

Has the debt lapsed because of time? If a debt has been unpaid for many years take advice before contacting the creditor or any debt collector. The debt may no longer be legally enforceable. The law says that most creditors have set time in which to start proceedings against you at the last address they have you listed at. If you make contact with the creditor verbally or in writing this time limit can be extended. But this is a complex area and you should seek advice if you think it applies to you.

In Scotland there is a time limit of 5 years or 20 years for taking legal action to claim money owed depending upon the type of debt. Some of the rules are complicated, for example, if there are arrears of mortgage interest payments, the lender has five years to take action, but if there are arrears on capital payments the time limit can be longer. The rules for time limits for pursuing some debts relating to payments administered by a UK government agency cut across the 5 or 20 year rules in Scotland. The main examples are:

• overpayments of social security benefits • overpayment of Housing Benefit and Council Tax Benefit, administered by a Scottish local • authority, can be recovered within five years of the date the decision maker decided the overpayment was recoverable• arrears of community charge and/or council tax are recoverable under the 20 year time limit.

Once the initial assessment has been made there are no time limits on HM Revenue and Customs collecting unpaid tax.


Is the amount owed correct?It’s always worth checking the amount that the creditor says you owe. Sometimes they may miscalculate the debt and ask you to pay back too much. Examples of when this may happen include:

• miscalculating the amount due• charging interest on an interest free loan • overestimating fuel bills• overlooking payments that you’ve made – try to remember to keep receipts of payments.

Some loans may be covered by insurance against sickness or unemployment, paying all or some of the debt so long as the terms of the policy are met. This is often known as ‘payment protection insurance’. You should always check to see if any of your debts are covered by an insurance agreement. Seek advice if you believe you should be covered by a scheme like this but the insurance company are refusing to pay out.

Starting to manage your debts

Before you start communicating to your creditors about what you can afford to pay it’s really important that you have a bank account where there is no loan or overdraft attached. This is because banks can take money from your account to repay any debts owing to them first, even if you explain your situation. This can result in any money being paid into your account being swallowed up to repay an overdraft or loan. There is a way to stop this, called the first right of appropriation, but it’s a complex area of law and you should seek advice if you think it applies.

Make three lists

You may feel overwhelmed by your debts and your lack of money to meet them. The process of dealing with your debts will include looking at your income and seeing if it can be increased in any way. The section on ‘Maximising income’ on page 16 explains more about the type of help that may be available.

So the first lists you need are one for income and one for expenditure – see below.

It’s also vital that you have a complete picture of all your debts in order to decide how to manage them. You may owe money to a number of different people, so you will also need to draw up a list of everyone you owe money to and how much is owed to each creditor.

This might include credit or store cards, catalogues, rent arrears, mortgage arrears, council tax arrears, bank or other personal loans. Drawing up a list like this may sound demoralising but it’s essential to deal with your debts efficiently and fairly.

Lists one and two - work out your income and expenditure

It’s also really important that you have a clear idea of how much money, if any, you have available to try and pay off some of your debts. This involves preparing a detailed list of your income and a detailed list of your expenditure to work out how much you can offer to creditors. These lists are


then summarised in a ‘financial statement’ which can be sent to creditors to give them a picture of your financial circumstances. We have included an income/expenditure sheet on page 22 of this factsheet to help you with this process.

When you draw up these lists it’s important to decide whether to use weekly or monthly amounts. The figures you use in your income/expenditure sheet must be either only in weekly amounts, or only in monthly amounts.

Making lists of your income and expenditure may feel daunting but it’s necessary to work out how much money you have available to try and pay off your debts.

Listing your expenditure may also help you to identify if there are any potential savings you might be able to make in your regular spending. When you make your list of expenditure don’t include the payments you make towards the debts, because you need to see how much you need each week or month for your regular living needs.

While it’s important to look to see whether some of your expenditure could be cut down, it’s also crucial that you don’t put down unrealistically low amounts. You need to have an affordable and sustainable budget to ensure that your debt problems don’t continue. It’s very important that you’re realistic about the amounts that you have going out. Even though you may not spend money on clothes and shoes every week, these will be costs now and again so remember to budget for these items.

Other important issues to consider are car and home insurance. You’re obliged to pay car insurance by law. Insuring your home is also very important because of the consequences of fire or theft. Think about other occasional spending such as haircuts, prescriptions or birthday presents, as they will all have to be built into your budget. Often looking at old bank statements can help you realistically estimate how much you spend on these items over the course of a year.

You should also try and make sure you fully list all the additional costs you face as a result of your child’s disability. Remember that benefits such as Disability Living Allowance (DLA) are intended to cover the care and mobility needs of your disabled child. While they need to be listed as income so that your creditors are aware of your family situation, you should make sure that an amount at least equal to your DLA is included as disability related expenditure.

This should help make sure that your child’s DLA isn’t regarded by your creditors as income available to repay your debts. Sometimes creditors may argue that DLA should be used to make payments towards debts. If this is the case you should seek advice.

A money adviser will be able to help you complete an income/expenditure form and will check to make sure there are no important outgoings you’ve forgotten to mention.

List three - the debts

Identifying your priority debtsOnce you have a clear idea of all of the money you owe, it will be important to identify which of these are ‘priority debts’. To decide which debts to prioritise, the important factor is the possible consequences if the creditor decides to take formal action against you, not the amount that you owe.


Priority debts include:

• mortgage arrears or any loan that is secured against your property – you could lose your home• rent arrears - you could be evicted• council tax arrears - deductions could be made from your wages or certain benefits, and certain types of goods could be seized• gas and electricity arrears - your fuel supply might be disconnected. Seek advice about ways of spreading payments, or there may be help available from gas or electricity trust funds towards clearing your arrears. The Contact a Family freephone helpline can give you more advice about this• court fines - deductions could be made from your wages or certain benefits, you could be imprisoned, and certain types of goods could be seized• maintenance arrears - deductions could be made from your wages or certain benefits, you could be imprisoned, and certain types of goods could be seized• income tax or VAT arrears - seizure of your goods, bankruptcy.

Non-priority debts include most forms of credit agreement as long as they’re not secured on your home. This includes:

• credit card debt• bank overdrafts• catalogue debts• store cards• unsecured loans.

Hire Purchase HP is a special type of credit which means you’re only ‘hiring’ (renting) the goods until you ‘purchase’ them at the end of the agreement. This means you don’t own the goods until the end of the agreement – until then the creditor owns them.

If you’ve paid off less than 1/3 of the amount owed under a hire purchase agreement, your creditor may be able to repossess the goods without having to take court action – expert advice should be sought. So whether a hire purchase debt is considered as high priority will depend on how much you’ve paid and whether the item in question is essential to you, for example, a cooker or a vehicle that is used for caring.

Generally speaking, priority debts should be dealt with first before you try and pay off any non-priority debts, as the consequences of not paying priority debts are more serious.

Some people may find that they get into difficulties because they pay the wrong creditors off first, because non-priority creditors often put more pressure on people in debt and write the most threatening letters.

Getting help negotiating with your creditors

The thought of negotiating with creditors can be a worrying one for most people. But you shouldn’t have to do this on your own. You should be able to get free, impartial and confidential advice from a money adviser.


Many organisations have trained money advisers who can provide comprehensive advice. You should be able to get details of services in your area from:

Money Advice Scotland Tel: 0141 572 0237 http://moneyadvicescotland.org.uk

Citizens Advice Scotlandwww.cas.org.ukFor details of your local CAB use the website, or your local telephone directory.

National Debtline Tel: 0808 808 400www.nationaldebtline.co.uk/scotland/ Gives advice over the phone. You should be able to speak to a trained money adviser who will talk you through your debt problems. They have a series of factsheets about debts and debt recovery on their website.

Consumer Credit Counselling Service Tel: 0800 138 3328www.scottishdebtline.co.ukSpecialist debt advice over the telephone, or check out their website.

Community Legal AdviceTel: 0845 345 4 345 www.clsdirect.org.uk Free telephone advice and you can also find out if you qualify for legal aid.

Details of local projects providing money advice are also available from our freephone Contact a Family helpline.

Once a money adviser has a clear idea of your whole situation, they will focus first on helping you develop a plan to reach agreement on repaying your priority debts. If you have any spare income left after this process, they will then try to negotiate an agreement with your non-priority creditors.

This is normally done by offering each non-priority creditor a percentage of your ‘spare income’. This is normally calculated on a fair basis whereby creditors owed the most money get offered the most. Creditors are familiar with this system.

No creditor likes to be offered less towards a debt than what was originally agreed. But many are willing to negotiate smaller repayments over a longer period, as long as you’re genuinely unable to pay more.

A money adviser will also try and get your creditors to agree to freeze the interest charges on your debt. Sometimes a creditor may also agree to write off all, or part of a debt. A creditor may be more willing to consider this if there are mitigating circumstances which have contributed to your financial problems and your circumstances are unlikely to improve in the near future.


For instance you may have had to give up work or reduce your hours as a result of your caring responsibilities, or fallen into debt because of a major expense on an item needed to meet your child’s care needs.

Some creditors may be willing to consider a temporary period when you’re allowed to make no repayments. This may be particularly useful if there’s a realistic prospect of your financial circumstances improving in the near future.

In some cases a money adviser may suggest that you enter into a Debt Arrangement Scheme (DAS), which helps people repay their debts at a rate they can afford over a period of time. If you have more than one debt and are having difficulty keeping up with your payments, an approved DAS money adviser can make an application for a DAS on your behalf. A list of registered DAS approved money advisers can be found at www.moneyscotland.gov.uk

If you’re on a debt payment programme under DAS, instead of making lots of payments to different creditors every week or every month, you’ll make a single regular payment to one payment distributor instead. Payments then get forwarded to each of your creditors. Your payment will be split in relation to the size of your debts. For example, if you have rent arrears of £2,000 and a store card debt of £750, your landlord will receive a larger payment than the store card lender.

If your application for a debt payment programme is successful and you keep up with the payments, your lenders will not be allowed to take any further action to enforce the debt.

Sequestration or Trust DeedsSequestration is another legal term for personal bankruptcy and in some circumstances you may wish to discuss this option. Sequestration involves the transfer of your assets and property into the hands of a trustee for the benefit of the lenders. Sequestration begins with a petition to the Sheriffs Court and then the court appoints a trustee to your case. The trustee is responsible for the transfer (sale) of assets (for example, a house, car, valuable items, savings and investments).

An alternative is to apply for a Scottish Trust Deed which then avoids bankruptcy and some of the constraints that are imposed by sequestration.

Sequestration and trust deeds are complex areas of law and there are implications which should be discussed with a money adviser first. See ‘Getting help to negotiate with your creditors’ on page 8.

What steps can creditors take to recover debts?

One of the most stressful things about being in debt is dealing with demands for payment from your creditors. If you owe money you may find you’re getting letters asking for payment, being threatened with court proceedings or approached by debt collectors. Creditors are entitled to make reasonable demands for repayment. But the Office of Fair Trading has a guide ‘Debt Collection Guidance’, which describes practices they consider unfair.

Some creditors will appoint debt collectors to recover money owing to them. Debt collectors have no legal powers to enter your home or take your goods and should be negotiated with in exactly the same way as other creditors.


Harassment by creditors Harassment of debtors is a criminal offence under Section 40 of the Administration of Justice Act 1970. In some instances creditors’ letters, telephone calls or visits can become overly intrusive. Examples of this can include:

• using scare tactics such as wrongly claiming that criminal proceedings can be brought against you or threatening to involve the police• nuisance visits or phone calls, especially at unusual hours • waiting outside your workplace on pay day • calling on neighbours, pretending to believe that you live at their address • falsely implying that non-payment of the debt will lead to criminal proceedings• pretending to be someone they’re not, for example a court official, sheriff officer or Messenger at Arms. • sending a person a document which looks like it has been sent from a court.

If you feel you’re subject to debt collection harassment then this too could be classed as a criminal offence. Harassment can be verbal or in writing. The Protection from Harrassment 1997 makes it a criminal offence for any person to pursue a course of action ‘which they know, or ought to know, amounts to harassment of another person’.

If you’re being harassed in any way, approach a money adviser immediately and ask them to write to the creditor to let them know that they’re monitoring the action the creditor is taking. A money adviser will also be able to advise you on reporting the creditor to the local Trading Standards Department or Office of Fair Trading.

You can’t normally be sent to prison for non-payment of debts unless, for example, you deliberately refuse to pay maintenance. But your creditors can take you to court and may be granted the right to take certain action against you. This may include, for example, eviction or repossession of your home, seizure of possessions or arrestment of wages or bank accounts, or an attachment of possessions.

Some letters from creditors will state that they are ‘pre-legal’. These are not court documents. They’re simply letters threatening you with legal action. What your creditor must do before taking court action will depend on the nature of the debt. For example, before private landlords can take possession proceedings in court to try to evict tenants, they may have to send you a ‘notice to quit’. Seek advice if you have arrears relating to your home. Many creditors can’t take court action until they’ve issued you with a ‘default notice’.

What is a default notice?If an agreement is regulated under the Consumer Credit Act 1974, creditors must usually issue a default notice before court action is started. The default notice will ask you to bring your payments up to date. If you’re unable to do this then you should seek the help of a money adviser.

You may be able to apply to the court for more time to pay. This can be done by applying for a Time to Pay Direction when a case is first heard by a court.

Alternatively, once a court order has been granted and the creditor has served you with a ‘charge for payment’, you can apply for a Time to Pay Order. This means that a debtor who has had a decree


granted against them by a court can be given more time to pay the debt, either by instalments or as a deferred lump sum. However, once you’ve applied for a Time to Pay Direction you can’t apply at a later stage for a Time to Pay Order.

Time to Pay Directions and Orders are not available for debts over £25,000 or for those relating to:

• awards in connection with divorce actions• maintenance orders• income tax, VAT or car tax. Time to Pay Directions and Orders should never be sought for rent arrears – seek specialist advice.

A default notice can seem quite frightening when you first read it, because it’s a legal demand for the full amount you owe under the agreement, and often threatens that court action will follow. A default notice is issued to formally end an agreement and it’s at this point that interest can be frozen and charges stop being added.

A creditor can’t accept reduced payments on the account indefinitely until a default notice has been issued so while it’s true you can be taken to court after receiving one, it’s more likely you’ll be able to start making payments you can really afford to pay on a long term basis.

You should never ignore a default notice and always seek advice if you receive one.

Rent, council tax, water charges and fuel arrears and parents on Income Support (IS), income-based Jobseeker’s allowance (ibJSA), income-related Employment and Support Allowance (irESA), or Pension Credit (PC)

If you’re on IS, ibJSA or irESA it may be possible to set up an arrangement to have a fixed amount (currently £3.30 per week as of April 2010) deducted from your benefit and paid to your landlord towards rent arrears. This is known as a third party deduction.

It may also be possible to arrange for a set payment of £3.30 per week to be deducted from your weekly benefit and paid towards council tax arrears. Please note that these arrangements only cover arrears and you will have to make sure you meet any ongoing rent or council tax charges.

If you claim IS, ibJSA or irESA you may also be able to enter into an arrangement to have money deducted from your benefit to pay for your current fuel usage – this is often known as ‘Fuel Direct’.

The fuel supplier will work out an estimate of your current weekly fuel costs and add on a small fixed amount (currently £3.30 per week) towards your arrears. The total weekly figure will then be deducted directly from your benefit and paid to the fuel supplier(s).

You can phone the Contact a Family helpline if you would like more information.


Being taken to courtIf you can’t resolve a debt problem with your creditor they may decide to take you to court. You can tell that this is happening if you receive a court summons or an initial writ. This will tell you who are taking you to court, the amount they say you owe them and the action they’re asking the court to take.

If you’re being taken to court it’s very important that you get specialist advice. See ‘Getting help negotiating with your creditors’ on page 8 for information on how to get free, confidential advice from a money adviser.

As soon as a creditor takes action in the courts they can apply to the court for a warrant to arrest money you hold in a bank or building society. This process is known as ‘arrestment on the dependence’ and freezes the money in your account pending the court decision.

However, an arrestment on the dependence is not automatically granted by the court, and a sheriff or judge will decide whether to grant your creditor’s application or not. They are rarely used for consumer debts.

There are three different types of court procedure for trying to recover a debt. They vary depending on the size of the debt:

• Small Claims procedure - for debts of £3,000 or less • Summary Cause procedure - for debts between £3,000 - £5,000• Ordinary Cause procedure - for debts over £5,000.

In most cases the creditor will be going to court to ask the sheriff to order you to pay the money you owe. If the money you owe is rent or mortgage arrears the sheriff may be asked to order you to leave your home. If the money you owe is for a car or something else that you’ve bought on hire purchase, they might also ask the sheriff to order you to give the goods back.

The papers you’ll get with the summons or initial writ will ask you to reply to the court. They will set a date you must do this by. When you respond to a summons or writ, you will usually be able to do one of three things:

• Defend the claim: this means you disagree with the amount the creditor says you owe. This could be because you don’t think you’re liable for the debt or because you think the amount has been wrongly calculated. If you do this there will be a hearing to allow the sheriff to find out more. • Admit the claim: this means you agree that you owe the money to the creditor. The sheriff will normally grant an order requiring you to pay the whole amount, which is usually owed with interest, or to leave your home or to return goods. You will usually also have to pay the creditors’ expenses. • Admit the claim but ask for time to pay: this allows you to say how much you’re able to pay towards the debt and how often this will be paid (for example, weekly or monthly). You should get a form with the summons or initial writ allowing you to do this. Your creditor can choose to accept or to reject your offer. If it’s accepted the sheriff will order you to make the payments you’ve offered. If it’s rejected there will be a court hearing so you can go and explain why you need time to pay. Remember, it’s up to you to contact the court to find out if your offer to the creditor has been accepted or rejected.


If you ignore the summons then it’s likely that the court will grant your creditor permission to take action against you.

Common steps in a court action Step one: you will be served with a summons/initial writ.Step two: court hearing. The court may grant a ‘decree’ against you. This is a statement that you definitely owe the money and that you must repay it. At this stage your creditor can also ask the court to freeze your bank account.Step three: if you don’t pay the money owed, your creditor is likely to apply to the court for an ‘extract decree’. This is permission to take action against you to recover the debt. Step four: the creditor must now send you a ‘charge for payment’. This is a warning that if you don’t pay what you owe within 14 days they will take action to get the money you owe them.

What action can a creditor take if they have been to court and been given permission to recover the debt? Once a court order or decree has been obtained from the court there are a number of ways a creditor can try to recover the money loaned or the goods you were given.

Earnings arrestment If you’re working, money you owe can be taken from your wages or your salary with a wages arrestment. But a creditor must send you a charge for payment. After 14 days have passed they can then use a wages arrestment.

There is a limit on how much money can be taken from your wages. This limit depends on how much you earn and how often it’s paid. You and your employer should be sent a schedule of arrestment outlining the amount to be taken.

Council tax debt and other local government debts - summary warrant

Special rules apply if you’re in arrears to a government department, for example council tax, VAT or income tax arrears. In these cases you’re not given the chance to go to court and the sheriff will instead grant a ‘summary warrant’. In most other cases your creditor can only take action against you once they’ve been to court and sought permission to take action.

Once a summary warrant has been granted against you, the government department must serve you a legal document known as a ‘charge for payment’. This gives you 14 days to pay your debts in full. Once the 14 days have expired they can seek to arrest your wages and bank account or to ‘attach’ your goods (see below for what this means). Or if you owe more than £3,000, make you bankrupt.

You can then apply to the court for a time to pay once a charge is served in relation to council tax and rates, but not debts owed to HM Revenue and Customs (HMRC).

If granted this allows you to repay the debts by instalments or a deferred lump sum. The local authority can’t arrest your wages or take other enforcement action against you providing you maintain payments. A money adviser should be able to help you in this process.


Bank account arrestment If you have money in a bank or building society account or money with a credit union, the money you owe can be taken from your account. When a bank arrestment takes place the money in your account, apart from the first £415, will be frozen, so you can’t withdraw it or make any direct debit or standing order payments. This means bank charges or late charges could build up in your account.

If you don’t agree to pay your creditor the amount owed from your account it will automatically be released to the creditor after 14 weeks.

Some funds held in a bank account are supposed to be exempt from arrestment. This includes any social security benefits or tax credits payments. But if these payments are mixed up with other money in your account it can be difficult to identify the amount that should be exempt.

If this happens to you it may be simpler to have your benefits and tax credits paid into a separate account. It may be possible to object to funds being transferred to your creditor but specialist advice should be sought.

Attachment If your creditor hasn’t been able to get back the money you owe them, they may be able to ‘attach’ your property. These ‘attached’ assets can be sold to help pay your debts. Usually only assets that are outside of the home can be ‘attached’, for example assets held at a place of business or in a garage or outbuilding.

Before your goods can be attached your creditor will normally send you a ‘charge for payment’. If you’ve not repaid your debt within 14 days a sheriff officer can enter any premises (other than your home) and attach and value your goods. Your creditor can then arrange for these goods to be auctioned to help repay your debt.

It’s also possible for a creditor to apply for an ‘Exceptional Attachment Order’ (EAO). This allows sheriff officers to enter your home to carry out an attachment on ‘non-essential’ goods. An EAO should only be granted as a last resort and the creditor must make a specific application to the court. This applies even where the creditor is a government department.

Rent or mortgage arrears or any other debt secured on your home If you’ve fallen behind with your rent or mortgage payments or with another loan secured on your home, you should seek urgent advice as soon as possible! Debts of this nature can ultimately lead to your home being repossessed or you being evicted by your landlord. Action you can take in this situation will depend on a number of factors, including the type of mortgage and lease you have. There are some laws which help protect homeowners and tenants who have arrears, so it’s important that you seek advice.


Bankruptcy In certain circumstances a creditor may attempt to make a client bankrupt. This is unlikely to be used against you unless you have considerable assets.

Forthcoming changes to the law The Bankruptcy and Diligence Act 2007 introduced a number of important changes to the ways creditors can seek to recover a debt.

Most controversially the Act introduces a new type of action that can be taken to recover a debt called a ‘Land Attachment’. When a creditor is owed at least £3,000, they will be able to apply to the court to force the sale of a property owned by the debtor.

This means that in certain circumstances creditors will be able to use the court to force the sale of a property in order to recover a debt, even though that debt was not originally secured against the property.

At the time of writing this change hasn’t been introduced and it’s thought unlikely that land attachments will be used to force the sale of the debtor’s main home. Phone the Contact a Family freephone helpline for more information.

It’s never too late to seek help Even if things have already got to the stage where your creditor has been granted the power to take steps against you, it’s not too late to get help from a money adviser. Sometimes a money adviser may be able to convince the creditor not to go ahead with the action they have been authorised to take. Or, if you didn’t go to the original court hearing and had no representation, they might be able to go back to court and ask them to reconsider your case. This is known as an application to ‘recall the decree’.

There are strict time limits for applying for recall of decree so get advice as soon as you can. It might also be possible to apply to the court for a reasonable amount of time to pay the debt off - known as a ‘Time To Pay Order’.

Maximising income

One way of trying to manage your debt problems is by seeing if there are any ways in which you can increase the amount of money that’s available to your household. You may have certain assets you can cash in or sell. These may provide you with a lump sum to pay off some of your debts. Some creditors may be willing to accept a lump sum payment as ‘full and final settlement’ on a debt, writing off the balance owed.

Depending on your caring responsibilities, it may be possible to raise your income by working increased hours or doing more overtime. But you should also bear in mind that higher earnings may lead to a loss in certain means-tested benefits or tax credits. This is a very complex area - seek detailed advice by calling our free helpline.

If your property is big enough you may also wish to consider the option of taking in a lodger. But you will need to bear in mind the impact on any means-tested benefits you receive. You may also


need permission from the landlord or mortgage lender under your tenancy or loan agreement. You will also need to consider the likely impact on your family. Living with debts is already extremely stressful and you may not cope with the additional stress of having a lodger.

There may also be tax implications and you should seek advice about this. If you already have a lodger or are thinking about letting furnished rooms in your home, you can receive up to £4,250 a year tax-free (2010-2011 tax year). This is known as the Rent a Room scheme. Call our freephone helpline for further advice.

Claiming additional benefits and tax creditsYou should always have a benefits check to see if there are any additional benefits or tax credits you should be getting. Some parents miss out on benefits because they wrongly assume that they can’t claim anything when they’re working. But some benefits (for example DLA) aren’t means-tested, while many others can still be paid if you’re working as long as your earnings aren’t too high.

If you’re able to claim any extra benefits this will lead to an increase in your weekly income. If the benefit can be backdated, it will also give you a small lump sum with which to try and clear off some of your debt.

Below are the benefits most commonly claimed by families with disabled children. More detailed information is available in our free guides: Help with council tax bills, A guide to claiming Disability Living Allowance for children, Benefits, tax credits and other financial help and The tax credits guide, available from our helpline. You can also call our helpline for a full benefits check to make sure you’re not missing out on anything.

If you’re not sure if you’re entitled to a benefit, complete a claim form anyway, as it’s difficult to get most benefits backdated. But if you care for an adult, a claim for Carer’s Allowance may affect that person’s benefits. Seek further advice before making a claim for an adult.

Disability Living Allowance (DLA)The main benefit for disabled children is DLA. It’s made up of two parts:

• The care component is for children who need extra attention or supervision. This is paid at three different rates depending on how much help or supervision the child needs • The mobility component is for children who need help with getting around. This is paid at two different rates depending on the nature of the mobility problem.

Your child may qualify for either or both of these components. If your child gets the care component at the middle or highest rate you may also be entitled to Carer’s Allowance.

An award of DLA can also lead to increased payments of Child Tax Credit - so make sure you let the Tax Credits Office know if you’re awarded DLA. DLA is not means-tested so you can claim regardless of your family income or capital.

Carer’s Allowance (CA)If your child gets the care component of DLA at the middle or highest rate you may be eligible to claim CA. If you work, then your wages (after deductions for certain childcare costs and other expenses) must not exceed an earnings threshold. This earnings threshold is currently £100 (for 2010/11). If you’re a student you can’t get Carer’s Allowance if your course is classed as full-time.


Child Tax Credit (CTC) CTC can be claimed by anyone with a dependent child, whether you work or not. You may receive increased CTC if you have a child with a disability. This is because an extra amount is added to your calculation for each child who is on DLA or who is registered blind. If your child gets the highest rate of DLA care component a further amount is also added.

Working Tax Credit (WTC) You can claim WTC if you have a dependent child and you (or your partner if you have one) are working at least 16 hours a week. As well as parents, certain other groups of workers can also apply. WTC can sometimes include help with eligible childcare costs.

The amount of tax credits you’ll get is usually based on your gross annual income for the previous tax year. Unlike most other means-tested benefits there is no capital limit.

Income Support and income-based Jobseeker’s Allowance (ibJSA)Income support is a means-tested benefit to help individuals or families on a low income with savings below £16,000. To qualify you must be someone who isn’t required to be available for work, for example, a carer. Income-based Jobseeker’s Allowance is a very similar benefit but is for people on a low income who are required to sign on as available for work.

Employment and Support Allowance (ESA)ESA is a benefit for people of working age whose health problems limit their ability to work. There are two types of ESA – contributory ESA and income-related ESA. The latter of these is means-tested.

Housing Benefit (HB) and Council Tax Benefit (CTB) These benefits are designed to help people on low incomes pay their rent and council tax. If you’re already getting IS, ibJSA, income-related ESA or Pension Credit (guarantee credit) you will usually qualify for full HB and CTB. But even if your income is too high to be paid any of the above qualifying benefits (for example because you’re working) you may still qualify for some HB and CTB.

The amount of help you get depends on how much your income is above Income Support levels. You will automatically be refused HB and CTB if you have savings of £16,000 or above - unless you’re above Pension Credit qualifying age.

HB and CTB are local authority benefits which means you will need to contact your local council for claim forms. A claim for HB or CTB can be backdated for up to six months so long as you have good cause for a late claim. Dealing with a child’s health problems will often be accepted as good cause. There are less generous rules about backdating for people over Pension Credit qualifying age.

Council tax disability reduction scheme This scheme helps to reduce your council tax bill if someone in your household is disabled and you have a second bathroom or kitchen needed by that person. You can also qualify for a reduction if you have a room in your house (other than a bathroom, kitchen or toilet) needed by a disabled person, or someone uses a wheelchair indoors.

A disability reduction can be backdated to the date you first met the qualifying conditions. The local authority will usually require you to put in a separate application each year.


Council Tax Discount Scheme Where there is only one adult in a household you should receive a discount of 25% on your bill. To assess a discount certain adults, including some carers can be treated as if they were ‘invisible’. Seek further advice from our helpline.

Help with NHS costs These include free prescriptions, free dental treatment, free NHS eye tests, and vouchers to help with the cost of glasses. Various groups can qualify for this help, including those on Income Support, income-related ESA and income-based JSA. Also, if you get Working Tax Credit (including a disability element) or Child Tax Credit, and your annual taxable income is below a certain amount (£15,276 for 2010/2011), you may qualify for NHS benefits.

If your income is slightly above this level you may still qualify for partial exemption on NHS charges by completing Form HC1 available from doctors, dentists, NHS hospitals or by calling 0845 850 1166.

Community Care Grants If you’re on IS, ibJSA or Pension Credit you may be able to apply to the Social Fund for a discretionary grant. This does not have to be repaid. These payments are made to ease exceptional pressures on families or to help people either at risk of going into care or needing help to settle in the community after a stay in residential care or prison.

Usually a grant is given for specific items. This might include clothing, bedding and other essential household items. Community Care Grants are often awarded to families with disabled children or children with serious health problems.

Other financial assistance

Housing Grants Some parents may get into debt as a result of paying for expensive adaptations to their home needed for their child with disabilities.

If you’re a private tenant or an owner-occupier you can get a mandatory housing grant (which means it must be provided by law) to help with the costs of any work that is deemed essential to meet the needs of a disabled person in your household.

A grant should cover at least 80 per cent of costs. People in receipt of Income Support, ibJSA, Pension Credit (guarantee credit) and income-related ESA should get 100 per cent of costs met. Everyone else is assessed to see if they can contribute to the costs of the other 20 per cent of the work.

A mandatory grant cannot be given to ‘extend the original structure of the property in order to provide additional living accommodation’. If an extension provides a standard amenity (for example, a downstairs bathroom) alongside additional living accommodation, a grant would be awarded for the portion of the work covering the standard amenity only.

Apart from mandatory grants local authorities also have the power to make discretionary grants towards housing adaptations. Seek further advice from our free helpline if you’re refused a grant for work to meet your disabled child’s needs.


You will be refused a grant if you start work on an adaptation before your grant application has been approved in writing.

If you’re a local authority or housing association tenant then you should approach both your landlord and the social work department for help with adaptations.

The Family Fund The Family Fund can give lump sums for specific items that arise from the care of a child who is under 18 with severe disabilities or seriously ill. Your social and financial circumstances will be taken into account. The Fund will consider any request, so you can ask for whatever you need most: for example, laundry equipment, transport expenses, clothing, holidays and so on.

Getting help with these sorts of disability related costs may help free up some of your income to help pay off your debts. To apply, ask for an application form from the Family Fund or apply online to:

The Family Fund, 4 Alpha Court, Monks Cross Drive, York, YO32 9WN, Tel: 0845 130 4542 www.familyfund.org.uk

Alternatively phone our helpline for an application form.

Grants from charities and benevolent funds It’s worth considering applying to a charity for financial help. Some charities will consider giving a lump sum to help with particular issues that are causing financial hardship, for example to help towards paying off a gas or electricity bill where someone in the household has a disability. Others may only be willing to offer financial help towards specific costs linked to your child’s ill-health or disability.

Securing a grant towards these costs may free up more of your weekly income which can go towards meeting your debts.

Also, some utility and water companies have charitable trusts. Contact your supplier to see if they operate one or contact:

CHARIS 01733 421050www.charisgrants.com who can provide details of trusts.

The Directory of Social Change publishes ‘A Guide to Grants for Individuals in Need.’ This is a practical guide to sources of money available from over 2,500 trusts and charities. Your local library or CAB may have a copy of this guide.

Our helpline also has a list of charities that give grants to families caring for a child with a disability. Contact the Helpline for a copy.

It may also be worth contacting any organisation concerned with your child’s particular condition. Some of these charities provide small grants. An adviser on our helpline can help you to find a suitable charity.


Financial help from the social work department The social work department has the power to provide financial assistance necessary to help a child. They will only normally consider making payments in exceptional circumstances. But it might be worth making a request if you’re in an emergency situation, for example facing disconnection for fuel arrears or eviction due to rent arrears.

If you would like further details about any of the information in this guide or would like to discuss your own case in more detail please call:

Contact a FamilyFreephone helpline: 0808 808 3555 (Monday−Friday)Email: [email protected]

This guide is one of a series produced by Contact a Family which includes ‘Benefits, tax credits and other financial help’, ‘A Guide to claiming Disability Living Allowance for Children’ ‘The tax credits guide’ and ‘Working’. Copies are available free fromour helpline.

Contact a Family Scotland provides support and information to families across Scotland caring for a child with a disability. To find out more about the help we can give please call us a call on 0131 659 2930 or e-mail: [email protected]


INCOME £ EXPENDITURE £Wages Mortgage/rentPartner’s wages Endowment policyIncome Support Second mortgage/secured loan

Jobseeker’s Allowance Service chargesTax Credits Buildings/contents insuranceChild Benefit Life AssuranceDisability Living Allowance/ Attendance Allowance

Council Tax

Carer’s Allowance Water chargesOther state benefits GasState Retirement Pension ElectricityOther pensions Any other fuel costsMaintenance (that you receive) Disability related costs

Income from boarders/lodgersChildcare costs

Other income Prescriptions and other health costsTOTAL INCOME Travel (including any car costs)

Court finesSchool meals/meals at workMaintenance (that you pay)Telephone (including any mobiles)TV licence/rentalHire purchaseRentalsFood and housekeepingClothing and shoesLaundryNewspapers/magazinesChildren’s pocket moneySport and leisureOther costsTOTAL EXPENDITURE

Income/expenditure sheet

Remember to be consistent in using only weekly amounts or only monthly amounts.


Getting in contact with us

Social networking Facebookwww.facebook.com/contactafamilyTwitter www.twitter.com/contactafamily

Podcasts You can download podcasts from our website atwww.cafamily.org.uk/news/podcastsiTunes you can listen to our podcasts at www.cafamily.org.uk/itunes

VideosYou can watch videos on ourYouTube channel at www.youtube.com/cafamily

Contact a Family ScotlandCraigmillar Social Enterprise & Arts Centre 11/9 Harewood Road, Edinburgh EH16 4NT Tel: 0131 659 2930

Free helpline for parents and families

0808 808 3555

Open Monday–FridayAccess to over 170 languages

www.cafamily.org.uk www.makingcontact.org

Registered Office: 209-211 City Road, London EC1V 1JN Registered Charity Number: 284912Charity registered in Scotland Number: SC039169 Company limited by guarantee Registered in England and Wales No. 1633333 VAT Registration No. GB 749 3846 82

Documents

Dealing with debt - Contact a Family · made in the future, so please call our freephone helpline on 0800 808 3555 for an update. Most of us will have debts of one sort or another,