THE latest figures showing soaring insolvencies, following as they do more bad news on repossessions, reveal the extent to which families are under financial pressure.
The numbers hit by personal insolvency in Scotland have increased from 1,545 to 4,055, according to the figures published on Friday.
This followed the Financial Services Authority's recent report that repossessions in the second quarter of the
year were 71% up on the same period the previous year. While the Scottish Government does not maintain figures for Scotland, repossession is becoming a significant worry for many Scottish homeowners.
Repossession allows a lender to take possession of a home, usually due to mortgage arrears or failure to pay secured loans. It is a last resort but homeowners struggling to make repayments or in arrears should not ignore the problem.
In many cases repossession can be stopped or delayed, even when the lender has started court proceedings. It is essential that contact is made with the lender as soon as possible and the reasons for the arrears explained and realistic repayment proposals made.
Homeowners who are not confident about negotiating a repayment plan with their lender should seek advice from a solicitor or the Citizens Advice Bureau.
Any repayment proposal should be consistent with the borrower's new circumstances, as repossession proceedings may be restarted if a payment is missed.
If a repayment plan is not accepted by the lender then the homeowner should continue to pay as much as they can and keep a record of their attempts to negotiate the repayment of the arrears with the lender. Ultimately, the sheriff and not the lender will decide whether a home should be repossessed. If the sheriff is satisfied that a repayment proposal is reasonable and sustainable then he may decide in favour of the homeowner.
A homeowner who falls behind with payments cannot be removed from their home without the lender following the correct repossession procedures, which begin with a notice, or a combination of notices warning that repossession proceedings have begun. The notice will specify a time limit after which the lender will have the right to sell the property.
Following receipt of a notice, the homeowner should contact the lender to try to negotiate a repayment plan. In the absence of any agreement being reached the lender has the automatic right to sell the property, but in practice most lenders raise court proceedings to obtain an order stating they have the legal right to repossess and sell the property.
If a homeowner receives a writ they should contact a solicitor immediately to defend the action, otherwise the court will automatically grant the order to repossess and sell the property.
The Mortgage Rights (Scotland) Act 2001 provides protection for owners and occupiers of properties which are used as a main residence and suspends the rights of lenders to repossess properties. This legislation entitles the owner/occupier to apply to the court for an order which prevents the lender from taking further action to repossess the property and allows additional time to pay arrears, or allows the owner/occupier extra time to find accommodation before the lender can repossess the property.
For those with major debt problems, a personal insolvency or bankruptcy may be the last resort. All assets including the family home will transfer to a trustee on bankruptcy and the trustee then has the power to sell the house or allow a spouse or family member to buy the bankrupt's interest in it.
Bankruptcy is a serious matter which will have significant consequences and advice should be taken, as there are alternatives. For example, the Government's Debt Arrangement Scheme gives more time to pay and freezes debts.
The single most important factor is communication, and homeowners who are struggling financially should contact their lender as soon as possible.
Alison Marks is a solicitor at Thorntons Solicitors