What to do when you can't afford a Trust Deed - LILA (Low Income, Low Asset) and beyond
For many people, a Trust Deed is a financial lifeline, but they are not suitable for everyone. For a few people this is simply not an option.
If you have debts you can no longer make payment on because you have a limited income, you will be unable to set up a trust Deed and sequestration could be your only route. But far from being an easy process, sequestration can be difficult to obtain if you have a low income.
Traditionally you could only sequester yourself if a creditor is willing to take you to court. However, if a creditor believes they will not cover the costs of court action by sequestering you, they will not bother to do so, and the debts and charges will continue to mount. Back in 2009 there were changes to the regulations governing sequestration and Trust deeds to introduce LILA – Low Income, Low Asset – Sequestration. If you income and assets fall below a certain threshold, you do not have to wait for a creditor to initiate proceedings and for £100 you can initiate proceedings yourself.
What Is Considered A Low Income For LILA Sequestrations?
If you earn under £220.80 a week – based on the standard national minimum wage for a 40-hour week - you will be defined under the law as having low income. If you receive income support, income-based jobseeker’s allowance or working tax credits you will still be treated as meeting the low income limits. Social security benefits and other tax credits are not included, however pensions and maintenance payments are.
What Are Considered Low Assets For LILA Sequestrations?
As long as you have no single asset worth more than £1,000 and total assets under £10,000 (household appliances etc are not included) you would be classed as low asset. Also if you own a property or land wholly or jointly you will not be classed as having low assets.
In general the conditions for applying for a LILA sequestration in Scotland are:
- Debt of more than £1,500
- Live in Scotland or have lived in Scotland for the previous year
- Have not been sequestered or bankrupt in the last year
You must also fulfil one of the following:
- A creditor is willing to make your bankrupt
- You are apparently insolvent
- A creditor has issued a statuary demand
- You have low income and low assets (LILA)
But What Happens If You Do Not Qualify For LILA Sequestration But You Still Cannot Sequester Yourself?
This is a unique set of circumstances that, until 15th November 2010, had no apparent solution. If you did not meet the low income, low asset criteria or cannot prove insolvency you could not apply for sequestration, but you may still have had large debts and limited income with which to make payments on them when due.
To address this deficiency in the regulations, Part 2 of the Home Owner and Debtor Protection (Scotland) Act 2010 was introduced and there is now a new route to sequestration for those caught in this Catch-22; a Certificate for Sequestration. Only authorised people can issue Certificates, including Insolvency Practitioners, CAB Money Advisors, local authority Money Advisors, and money advisors working for an agency that has been accredited at Type II of the National Standards for Information and Advice Providers. Based on the information you provide, if they are satisfied you cannot pay your debts and do not qualify for LILA sequestration they can issue you with a Certificate. They are not allowed to charge you for the Certificate, although you must still pay the £100 fee, and you have 30 days from the day it is signed to apply for sequestration.
If you need more information or to talk about a Certificate of Sequestration contact one of our Advisors on 0800 193 1024. All advice is free and we will do our utmost to talk you through and consider all the options before you go ahead. Alternatively you can use our Free Call Back Form here.
Trust Deed Example
Example Unsecured Debts
|2||Credit card 1||£6,812|
|3||Credit card 2||£4,092|
|4||Credit card 3||£5,399|
|4||Credit card 4||£5,200|
Your Monthly Repayments Would Be
a Scottish Trust Deed £748
(total contractual repayments)
a Scottish Trust Deed £295
(total contractual repayments)
* Subject to creditor acceptance
* Payment subject to individual circumstances
* Credit rating may be affected
* Fees apply, subject to individual's circumstances. For more information on our fees click here