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A borrower’s Bounce Back Loan repayments don’t start for a year, so repayment problems with these loans aren’t an issue yet.
There is an issue today for sole traders in Scotland who have taken a Bounce Back Loan in addition to large pre-existing debts. Other self-employed workers have continued to build up new personal debts (after getting a loan via the BBLS earlier this year) to cover their household bills and expenses.
The outcome is that increasing numbers of people are becoming overwhelmed by debt during a continued period of harsh trading conditions. It’s already speculated that up to 60% of Bounce Back loans will default.
It has been widely advertised that Bounce Back Loans are government guaranteed. This “guaranteed” status has resulted in misunderstandings about who precisely is benefiting from the guarantee.
The government guarantee was provided to lenders so that they could freely distribute funding to struggling businesses. The government has promised the banks that they’ll cover the cost of future defaults.
This does not protect the borrower at all. The protection is given only to the lender.
If you fall into arrears on a Bounce Back Loan, the lender will use their standard debt recovery processes to attempt to recover payment from you. Your credit rating will be affected and the lender may outsource the recovery process to an external debt collection agency.
The government may reimburse your loan provider if they cannot secure payment from you, but that doesn’t mean that your loan has been written-off. You’ll remain liable for repayment and debt recovery activity is highly likely to continue.
Your only extra protection associated with a Bounce Back Loan is a restriction against attacking certain personal assets as part of the debt collection process. Your main home and your main vehicle shouldn’t be attacked to recover payment from you. Other serious types of recovery and legal action can still be used however.
Mortgage lenders, banks, and credit card providers have provided a huge number of payment holidays to financially affected borrowers. Other financial support has also been offered, for example deferred council tax payments. The general consumer debt relief program has helped people to weather the financial storm, but it’s coming to an end in October 2020.
Consumer credit providers are still expected (by their regulator) to be sympathetic to the situations of affected customers, but this is now moving to a case-by-case rather than a general basis. More questions are likely to be asked of struggling borrowers and more tailored agreements made. In general, debt recovery action is likely to return somewhat back to normal in the coming months.
If you’re self-employed and struggling to cover your bills and debt repayments, it’s important to request expert debt advice as soon as possible.
Debt advisers will review all of your debts when providing you with advice, including a Bounce Back Loan if you have one. From a debt advisory standpoint, it’s not especially relevant that the repayment on this loan isn’t yet due. All of the major debt solutions in Scotland will require the inclusion of a Bounce Back Loan along with your other qualifying creditors.
A protected trust deed (often simply known as a “trust deed”) is often used to deal with significant personal debt problems in Scotland. It’s useful if you can pay something towards your debts but you cannot afford the full contractual repayments.
You make a single affordable payment each month and your trustee deals with your creditors for you. Your payments will usually continue for four years but there are circumstances where this might be a longer process.
Once you complete your trust deed obligations, any remaining unpaid element of your debt is legally written off. This will include the unpaid element of a Bounce Back Loan that you’re personally liable for.
The debt arrangement scheme (sometimes known as “DAS”) can provide you with more time to repay your debts. Interest and other charges stop, so more of your money gets used to clear what you owe.
You make a single monthly payment and an adviser deals with your creditors for you.
No debt gets written off, so this plan will continue for as long as it takes to clear your debts in full. If you’re personally liable for a Bounce Back Loan this will be included in your DAS.
Becoming bankrupt (also known as “sequestration” in Scotland) is another option to deal with serious financial difficulties.
You’ll be required to make a regular payment for four years, but only if you can afford to do so. You can still enter bankruptcy in Scotland even if you cannot afford a regular monthly payment. Certain types of assets might have to be sold to help repay your creditors.
Your trustee deals with your creditors for you and you can be discharged from your debts after just one year. Any remaining debt (including a Bounce Back Loan that you’re personally liable for) will get written off when you’re discharged.
A debt management plan is a repayment debt solution that works in a similar way to the debt arrangement scheme. You make a single reduced payment towards your debts until they have been cleared in full.
Unlike DAS, a debt management plan will not provide you with formal legal protection from your creditors and it does not guarantee that interest will be stopped.
Debt management does have the advantage that your personal details aren’t added to a public register but in general the other debt solutions will offer you more certainty and protection. If a debt management plan does meet your needs a Bounce Back Loan can be included in it.
The government launched the Bounce Back Loans Scheme (also known as BBLS) to support smaller businesses that suffered as a result of the Covid-19 pandemic and subsequent lockdown. More than 63,500 loans have been made under this scheme in Scotland delivering £1.8 billion of support to Scottish businesses and sole traders.
The self-employed have been able to borrow up to 25% of their annual turnover, with loans being issued from £2,000 to £50,000. Deferred repayment terms, low interest rates, and a long repayment term made them attractive to sole traders whose businesses had come under substantial financial pressure.
The range of personal debt solutions available in Scotland can be used to address Bounce Back Loan debts (and arrears) related to any provider on the British Business Bank’s accredited lender panel:
For expert advice on dealing with personal debts please contact us.
We’re authorised and regulated to provide you with advice about all of the debt solutions that are available in Scotland. Trust-Deed.co.uk has helped hundreds of self-employed sole traders who have got into debt as a result of business difficulties.
Author: Andrew Graveson
Qualified Debt Adviser & Trust-Deed.co.uk Founder
Page last updated: 21/10/2020
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