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Notes for Guidance - Common Financial Tool

Notes for Guidance explaining the information and evidence requirements to support debt solution applications.


4. Assets

Consideration of the valuation of assets is particularly important if debtors are considering statutory insolvency solutions as these may vest or be conveyed to the trustee appointed.

Heritable property

Prior to establishing if a debt solution is the appropriate action, the equity position of the debtor’s property should be ascertained. This allows the debtor to obtain a realistic valuation and potentially safeguard their home. If a debtor enters into the Debt Arrangement Scheme (DAS), the property is excluded from the arrangement and a valuation is not required.

Where a trust deed is the selected option, the valuation costs are absorbed by the trust deed and the debtor is not liable to pay these. An up-to-date valuation and current security statement should be obtained to calculate the equity. This will ensure the debtor has a full understanding of the possible outcome regarding their property, should they apply for a trust deed or bankruptcy.

It may also allow them the opportunity to avoid a statutory debt solution if equity release is an option.

Establishing this information at the out-set is a key element in the provision of best advice and will apply irrespective of whether the debtor is accessing this advice from the free or paid money advice sector.

This should apply to any property which the debtor owns or has part ownership - not only their residential property.

Verification of secured debts must be provided. In all cases, a mortgage statement should be requested from the lender. Statements for any other loans secured against property must be provided.

Where no security is held on the property, it may be beneficial for the debtor to seek further independent financial advice before deciding whether to enter into an insolvency debt solution.

Vehicles

A valuation of the debtor’s vehicle(s) should be obtained from an independent recognised source such as Glass’s guide, Parkers, or car dealership. The Accountant in Bankruptcy may also obtain a vehicle valuation. If the car valuation is lower than could be expected for the make, model and year of the vehicle, i.e. due to damage to the car, or excess mileage, an explanation for the low valuation and the source of the valuation, must be provided.

Additionally, money advisers/trustees should confirm why use of the vehicle is required. This could include the need to travel to work or a vehicle required for a specific reason (e.g. ill health impacting on mobility). Other factors including rural location and access to amenities/shops can also be taken into account.

The cost of keeping and running a vehicle provided through the Motability scheme in lieu of Personal Independence Payment (PIP) or Disability Living Allowance (DLA), should be included in the DLA expenditure calculation.

The valuation of a vehicle is important as bankruptcy legislation only provides for debtors to retain ownership of a vehicle of up to £3,000 in value and where it is reasonably required. Incorrect advice at the out-set may result in the vehicle being sold by the trustee in bankruptcy.

Insurance policies

Money advisers/trustees must obtain documentary evidence of all insurance policies held and establish whether there is any immediate realisation value.

The onus is on the debtor to clarify the position. It is important that the surrender value of any life insurance policy is established prior to a bankruptcy application as this may impact on the debtor’s criteria for applying through the Minimal Asset Process (MAP). If the surrender value of the policy exceeds £1,000 then the debtor will not be eligible for bankruptcy through MAP.

Maintenance of insurance policies is acceptable if each policy is relevant and the cost is not excessive. Debtors should be advised that if insurance policy premium costs are excessive, the debtor may be asked to pay a higher contribution amount.

It is important to note that advice on any decision to change life cover provision or to dispose of an insurance policy falls within the boundary of regulated financial advice and therefore outside the remit of advice from money advisers/trustees. If the debtor has any queries regarding their life insurance policies, they should be referred to an appropriate adviser.

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