Best home protection for debtors being overlooked, law centre claims

Scottish insolvency practitioners should make more use of legal provisions designed to allow debtors' homes to be protected, whilst providing repayment of their debts, Govan Law Centre claimed today.

Since 2010, it has been possible for debtors who have granted a security over their house to a mortgage lender to exclude their house on granting a protected trust deed, if they have the lender's agreement in advance. However the provisions, now contained in ss 166 and 167 of the Bankruptcy (Scotland) Act 2016, have rarely been used, according to GLC. They are not offered by the majority of private insolvency practitioners, who are the only people able to provide the service, and homes are at risk as a result.

GLC said its Personal Insolvency Law Unit had come across a number of cases where people had entered protected trust deeds, in the belief their homes were safe, only to discover later that the trustee was raising court action to sell the homes.

The law centre contrasted the position with that in other parts of the UK, where banks and credit card companies agree to disregard as much as £20-30,000 equity in debtors' homes in return for an extra year’s contribution in individual voluntary arrangements (the closest comparison to a Scottish protected trust deed).

GLC's principal solicitor, Mike Dailly said: “It’s routine in the rest of the UK for consumers to enjoy protection from their home being repossessed through individual voluntary arrangements. We don’t think the Scottish personal insolvency market is operating competitively.

“Unless firms start to offer all of the available options to Scottish consumers, Govan Law Centre believes there is a case for the Competition & Markets Authority to undertake a market study of the sector in Scotland.”

Last month GLC's unit published a wider report describing personal insolvency in Scotland as a "dysfunctional market". Click here for a Journal article based on the report.