Creditor Acceptance

 

In this article we explain why creditors usually accept protected trust deeds, debt arrangement schemes, and debt management plans.

 

You may be concerned that creditors have no good reason to accept a reduced payment from you, but rejection is unlikely if you get expert debt advice.

 

Because debt problems are widespread, the lending regulator (as well as the lending industry itself) imposes standards and rules about the treatment of those who get into debt difficulty.

 

Using a debt adviser will help you to find a suitable debt solution and keep your creditors informed.

 

Agreeing to a suitable debt solution is generally the most profitable option for your creditors.

 

Creditors Expect Debt Problems

 

Lenders know that some of their customers will become unable to pay what they owe. This level of credit risk is factored into the interest rates that borrowers get charged.

 

People rarely get into debt problems on purpose. It usually results from a change in personal circumstances or from a build-up of debt over several years that eventually becomes unmanageable.

 

Because creditors expect some borrowers to struggle to repay their debts, they’re ready and willing to consider suitable debt solutions if they become necessary.

 

Lender Regulation

 

Most types of credit providers are regulated by the Financial Conduct Authority.

 

The FCA’s rules cover how lenders should react when a customer gets into debt difficulty. The rules focus on the fair treatment of customers and explicitly state that,

 

“A firm must treat customers in default or in arrears difficulties with forbearance and due consideration.”

 

The regulator expects lenders to agree to a reduced payment if they learn that their customer is in financial difficulty.

 

Lending Standards Board Rules

 

UK lenders also set their own standards via the Lending Standards Board. The LSB sets member standards to support the achievement of fair customer outcomes.

 

The LSB’s own Standards of Lending Practice publication requires that,

 

“Firms should demonstrate an empathetic approach to the customer’s situation; listening to and acting upon information provided by the customer with a view to developing an affordable and appropriate solution.”

 

A customer does not have to provide this information personally and can appoint a debt adviser to do this on their behalf. The aim is to propose an appropriate and affordable debt solution that the lender will accept.

 

Profitability

 

Creditors want to make money as well as meet their regulatory obligations. Recovering some or all of the money they’re owed is important to them.

 

Accepting a reduced payment via a debt repayment solution can maintain a reasonable level of profit and ensure regulatory compliance. Debt repayment solutions include the debt arrangement scheme (DAS) and informal debt management plans.

 

Even debt solutions that result in some debt write-off can be a good outcome for a lender. For example, a protected trust deed might produce a better commercial return than bankruptcy.

 

Debt solutions can also reduce administrative expenses. The solution provider handles many tasks that the lender might otherwise have to manage using their own staff and facilities.

 

How Debt Advice Can Help

 

Debt advisers can help you and your creditors.

 

The adviser will make recommendations about appropriate debt solutions. They can also keep your creditors informed so that they don’t have to investigate the situation themselves.

 

Because debt advice is regulated, the lenders are likely to view your payment proposals as being trustworthy and reasonable when they receive them. This makes it more likely that they’ll accept your debt management solution.

 

If you live in Scotland there are several debt solutions you can choose between. If you live elsewhere in the UK please click here.

 

Debt Management Plans

 

A debt management plan arranges a reduced payment to your creditors until the full debt owed is repaid. A DMP lasts for a variable length of time.

 

The DMP firm produces a schedule of your income, bills, and other expenditure. Creditors review this financial information to judge whether to accept the reduced payment you are offering.

 

Debt management offers an attractive solution to lenders as it can help them to meet regulatory and profitability goals. Your creditors are also likely to stop charging interest.

 

Debt Arrangement Scheme

 

The debt arrangement scheme also arranges a reduced payment to your creditors. DAS continues until your debts are fully repaid and no debt usually gets written-off.

 

Your money adviser produces a schedule of your income, bills, and other expenditure. Creditors review this financial information to assess whether to accept the arrangement.

 

DAS provides an attractive solution to creditors because it can help them to meet regulatory and profitability goals. Your creditors must stop adding interest and they cannot use the courts to recover money from you.

 

Protected Trust Deed

 

A protected trust deed arranges for you to make reduced repayments for an agreed period of time (often four years). The debt that isn’t repaid gets written-off at the end.

 

A trust deed in Scotland gets approved if less than one third (by debt value) of your creditors object to it going ahead.

 

Consumer credit lenders make their trust deed acceptance criteria available to those who act as trustees. Your trustee should therefore be fairly sure in advance whether your trust deed proposals will be agreed to by your creditors.

 

Creditors have a commercial and regulatory interest in accepting most trust deed proposals, provided that they are submitted in line with the standard acceptance criteria.

 

Bankruptcy

 

Creditor support is not required if you apply for bankruptcy in Scotland.

 

Get Debt Advice

 

For advice about debt solutions in Scotland please contact us.

 

Our friendly experienced debt advisers will assess which debt solutions are suitable for you and are likely to be agreed by your creditors.

 

Although we’re based near Cardiff in Wales we’re fully qualified and experienced in providing advice on the full range of Scottish statutory debt solutions.

 

 

Author: Andrew Graveson

Qualified Debt Adviser & Bright Oak’s Founder

 

Page Last Updated: 26/07/2020

 

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